China’s iron ore inventory
Tracking the data for imported iron ore inventories at Chinese ports is important for investors to get a sense of the direction of iron ore prices. This inventory determines the balance of supply and demand balance steelmaking commodities (GNR).
They also measure the imbalance between supply and steel mill demand. When mill demand is high, the inventories get used up more quickly and vice versa.
Inventories inching up
The iron ore port inventories have remained elevated, reaching ~141.5 million tons in June 2017. While the inventories had started declining after that, they’ve again reversed course. The inventories had fallen to 131.9 million tons on September 15, 2017.
On October 10, 2017, inventories reached ~133.9 million tons. The buildup of inventories might be due to the stockpiling of low-grade iron ore at the ports while Chinese mills shift to higher-quality material in the bid to fight pollution. Because these stockpiles are usually of low- to medium-grade ore, the stockpiles kept getting bigger.
In the last couple of months, iron ore prices have been increasing despite higher inventories at the ports.
Effect on iron ore prices
The buildup of inventories at ports is generally a negative factor for iron ore prices. The recent shift of Chinese mills from lower- to higher-grade materials has, however, muted that effect—at least for the miners producing the higher-grade product.
Miners such as Rio Tinto (RIO), Vale (VALE), and BHP (BHP) (BBL) produce high-grade material. Cleveland-Cliffs’ (CLF) Asia-Pacific division and Fortescue Metals Group (FSUGY) produce relatively lower-grade iron ore, thereby attracting discounts.