Why Iron Ore Port Inventories Barely Budged from Record Highs



China’s iron ore inventory

In this article, we’ll look at China’s iron ore port inventories and what they suggest for iron ore prices. The inventories at port reflect the difference between demand and supply. Usually, if iron ore isn’t used up by steel mills, it piles up at ports. Therefore, increasing inventories reflect weak demand and vice versa.

Inventories: Not much of a budge

Iron ore inventories at Chinese ports totaled 158.68 million tons for the week ended June 15, according to the Steelhome consultancy. This level implies a decline of 2.35 million tons compared to the previous week, when inventories had once again hit an all-time high. While it’s difficult to know the exact proportion of stockpiles, the majority of the inventories are expected to be low-grade ore.

Higher inventories have somewhat manifested in weaker iron ore prices. Previously, prices were firm despite increasing inventories because most of the stockpiles were lower-grade material. To control pollution as directed by authorities, Chinese mills switched from lower-grade ore to higher-grade ore, resulting in lower-grade material stockpiles at ports. Now, however, things are changing. As iron ore prices and steel margins come under pressure, Chinese steel mills could again start demanding lower-grade materials, which could pressure prices.

Effect on iron ore prices

If the selling pressure on iron ore prices persists, iron ore–producing miners (GNR), including Rio Tinto (RIO), Vale (VALE), and BHP (BHP) (BBL), could also come under pressure. Cleveland-Cliffs’s (CLF) Asia-Pacific division and Fortescue Metals (FSUGY) produce low-grade iron ore. These miners could come under increased pressure due to larger discounts.

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