Tracking China’s port inventory
Chinese ports’ iron ore inventory levels can impact purchasing decisions. Iron ore represents the largest category of product shipment within the dry bulk shipping industry. It’s important to note that most of the shipments go to China. When the Chinese market rises, shipping stocks tend to rise as well. However, when inventory levels are high, importers may postpone new orders.
China’s iron ore port inventory falls to 17-month low
The SteelHome China Steel Price Index collects inventory data on a weekly basis from 44 ports in China (FXI). For the week ending May 8, iron ore port inventories moved down significantly. They were at 92.15 million tons. This is the lowest level since January 2014. The inventories for the week before were 96.85 million tons.
This took the inventory ratio down to 1.32x the amount of steel production for April—compared to a ratio of 1.40 for the week ending May 1. Often preferred over raw inventory figures, this ratio measures how much inventory is available in order to keep current steel production activity going. The five-year average ratio is 1.49x the steel production figures.
Inventory impacts dry bulk carriers
One of the reasons behind the current drop in inventories is fewer shipments coming in from Australia and Brazil due to weather-related issues. This led the mills to use up the inventory at ports. As more inventory gets used up at the ports, chances are that more iron ore will be ordered in the coming months. However, this will likely lead to a short-term uptick in imports.
For a sustained increase, the underlying demand for steel needs to go up. That would have a lasting positive impact on the Guggenheim Shipping ETF (SEA). It would also be positive for dry bulk shipping companies like Diana Shipping (DSX), Golden Ocean Group (GOGL), and Eagle Bulk Shipping (EGLE).
Investors can also consider the SPDR S&P Metals and Mining Index (XME) to gain exposure to the diversified metals space.
China’s import volumes drive the dry bulk shipping industry. In the next part of this series, we’ll analyze iron ore’s import volume progression in China.