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Iron ore stocks at Chinese ports hit an all-time high

Iron ore stocks at Chinese ports hit an all-time high



Iron ore inventories at major Chinese ports rose sharply in recent weeks and reached an eye-watering 153.6 million tonnes at the beginning of this week, up 10.2 million tonnes or 7.1% month-on-month. There is no available data with regards to the grade of the material in stockpiles. However, 56% of the total is reported to be imported from Australia, 24% from Brazil, 2% from India and 19% from other countries.


 
One could argue that the record-high iron ore inventories could potentially stall recovery as a prolonged destocking cycle could lead to a drop in imports and put pressure on vessel earnings. Taken at face value, 154 million tonnes of stocks look excessively high. However, we believe the bearishness is overdone; when looked relative to imports, inventory levels appear much more moderate. Iron ore stocks held by steel mills also stand at 29-30 days of consumption, which is an adequate level for this time of the year.
 
While assessing the potential implications of record-high iron ore stocks one should also consider steel product inventories which currently remain exceptionally low. Some recent market commentary has centred on rising steel stocks, with some market players becoming nervous given a faster-than-expected seasonal build-up. Indeed, data show that traders’ steel stocks increased 12% over the first two weeks of January, almost three times faster than the average increase in the past five years. But one has to put the inventory build-up in January into context: inventories are rising from an exceptionally low base, and they remain 12% below last year’s level.

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