A reddish-gray mountain range is springing up across China’s eastern seaboard, casting a shadow over the nation’s economy.
The mountains are iron ore, a crucial import which’s a lifeline to the world’s largest steel producer, and their size has become a telling, even if imperfect, signal of the Chinese economy’s sharp, sudden sputter.
Iron ore stockpiles at Chinese ports this week reached an all-time high of around 120 million tons, a senior analyst for Beijing’s Umetal.com told China Real Time on Thursday. The high supply level is not a good indicator: It suggests steelmakers aren’t in a hurry to produce, signaling a weak appetite across the industry that is heavily dependent on China’s all-important real-estate sector.
It’s not just iron ore. China is the world’s largest buyer of just about every industrial commodity, so an economic slowdown since April in the world’s second largest economy is a reason for concern in global trade.
Coal stockpiles this week also reached a 2012 peak, rising 40% compared to a year earlier at 8.7 million tons, according to analysts at a research agency affiliated with the National Development and Reform Commission. High stock levels also extend to agricultural commodities, with the state-backed China National Grain and Oils Information Center warning last week that “recent soybean arrivals at ports have been on the higher side.”
As far as iron ore is concerned, however, the rising port stock levels aren’t necessarily a harbinger of doom, said Zhang Jiabin, research director for Beijing-based steel consultancy Umetal.com. While higher inventories normally point to slower downstream demand, Zhang said it would be too simplistic to say consumption is going down. “The ore stock level has been fairly steady this year, and although there has been some output reduction among smaller steel mills, there have not been large-scale production cuts,” he said.
Iron ore spot prices began to increase in the last week of May after sliding 9% from mid-April, signaling that steel makers have resumed bargain hunting.
Still, if ore inventory consumption is measured and compared in terms of how many days’ port stocks can last, it’s clear the industry is languishing. Stock levels surveyed in a sample of 50 smaller mills over the last 2 weeks have remained around 29.9 days-of-use, Macquarie Commodities said in a report published Wednesday. In comparison, mills were holding about 20-28 days’ worth of stocks last year, Macquarie said.
Steelmakers are also facing more problems obtaining bank loans. “It’s an open secret that banks are now more restrictive toward loans for steel mills and fluctuating prices have reduced the ability of trading houses to use imported steel as collateral,” Zhang said.
In some cases, analysts have already started projecting that rising quayside supply will dent China’s import appetite. Macquarie estimated that refined copper imports in May could fall 25 percent from April as Chinese consumers opt to run down high levels of domestic stocks. Copper stocks are estimated to have risen sharply this year to around 1 million tons. Iron ore imports have shrunken for 2 successive months.
Bouts of high port inventories don’t always tell the story of a slowdown that’s here to stay. China’s steel mills have been known to pause buying as a collective tactic to secure cheaper ore prices. But if the freighters calling at Chinese ports need any early indication of what’s going on, they need look no further than the record high right at their offloading berths.
Iron ore stockpiles at Chinese ports this week reached an all-time high of around 120 million tons, a senior analyst for Beijing’s Umetal.com told China Real Time on Thursday. The high supply level is not a good indicator: It suggests steelmakers aren’t in a hurry to produce, signaling a weak appetite across the industry that is heavily dependent on China’s all-important real-estate sector.
It’s not just iron ore. China is the world’s largest buyer of just about every industrial commodity, so an economic slowdown since April in the world’s second largest economy is a reason for concern in global trade.
Coal stockpiles this week also reached a 2012 peak, rising 40% compared to a year earlier at 8.7 million tons, according to analysts at a research agency affiliated with the National Development and Reform Commission. High stock levels also extend to agricultural commodities, with the state-backed China National Grain and Oils Information Center warning last week that “recent soybean arrivals at ports have been on the higher side.”
As far as iron ore is concerned, however, the rising port stock levels aren’t necessarily a harbinger of doom, said Zhang Jiabin, research director for Beijing-based steel consultancy Umetal.com. While higher inventories normally point to slower downstream demand, Zhang said it would be too simplistic to say consumption is going down. “The ore stock level has been fairly steady this year, and although there has been some output reduction among smaller steel mills, there have not been large-scale production cuts,” he said.
Iron ore spot prices began to increase in the last week of May after sliding 9% from mid-April, signaling that steel makers have resumed bargain hunting.
Still, if ore inventory consumption is measured and compared in terms of how many days’ port stocks can last, it’s clear the industry is languishing. Stock levels surveyed in a sample of 50 smaller mills over the last 2 weeks have remained around 29.9 days-of-use, Macquarie Commodities said in a report published Wednesday. In comparison, mills were holding about 20-28 days’ worth of stocks last year, Macquarie said.
Steelmakers are also facing more problems obtaining bank loans. “It’s an open secret that banks are now more restrictive toward loans for steel mills and fluctuating prices have reduced the ability of trading houses to use imported steel as collateral,” Zhang said.
In some cases, analysts have already started projecting that rising quayside supply will dent China’s import appetite. Macquarie estimated that refined copper imports in May could fall 25 percent from April as Chinese consumers opt to run down high levels of domestic stocks. Copper stocks are estimated to have risen sharply this year to around 1 million tons. Iron ore imports have shrunken for 2 successive months.
Bouts of high port inventories don’t always tell the story of a slowdown that’s here to stay. China’s steel mills have been known to pause buying as a collective tactic to secure cheaper ore prices. But if the freighters calling at Chinese ports need any early indication of what’s going on, they need look no further than the record high right at their offloading berths.
