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Weak Japanese Iron Ore Imports Are Negative for Iron Ore

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Japan’s iron ore market

Japan accounts for 10%–13% of the seaborne market. So Japan’s iron ore imports are a good indicator of iron ore demand.

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Japanese iron ore imports

Japan’s Ministry of Economy, Trade and Industry releases data for Japanese iron ore imports on a monthly basis. Japan’s iron ore imports totaled 11.1 million tons in April compared to 11.6 million tons in March. This is a decline of 4.3% month-over-month and 5.8% year-over-year. For the first four months of the year, Japanese imports declined by 0.6% compared to the same period last year.

Japan’s steel production also remained weak in April. Production declined 9.6% month-over-month and 6% year-over-year to 8.4 million tons.

The impact on investments

As we’ll see later in the series, underlying iron ore demand in China remains weak. This along with weakness in demand from Japan could lead to significant pressure on iron ore prices. It also negatively impacts iron ore companies in seaborne trade, including Rio Tinto (RIO), BHP Billiton (BHP) (BLT), Vale SA (VALE), and Cliffs Natural Resources (CLF).

Lower demand also affects funds like the iShares MSCI Global Metals & Mining Producers ETF (PICK). Together, BHP Billiton and Rio Tinto account for 30.4% of PICK. The SPDR S&P Metals & Mining ETF (XME) also invests in metals and mining companies.

Chinese steel prices have a great bearing on iron ore prices, since 98% of iron ore mines goes into steelmaking. China consumes two-thirds of seaborne iron ore. We’ll see in the next part of this series how steel prices are progressing in the Chinese market.

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