At hulking ports along China’s coast, iron ore is piling up. At the same time, the price paid for iron ore in China, shipped from countries such as Australia and Brazil, is at its highest level in months.
That disconnect has many traders and analysts questioning whether the value of the steelmaking ingredient is headed for a fall.
This week, the spot price of iron ore climbed as high as $58.80 a metric ton, its most expensive since early May and up 37% from where it started the year. Over the same period, stockpiles at Chinese ports have swelled by 13%, to 104.5 million tons, their highest since December 2014, and are creeping back toward that year’s all-time high, according to Shanghai Steelhome Information Technology Co., a market information provider.
Port inventories of iron ore, one of the world’s most traded commodities along with oil, are a closely watched measure of how much excess raw material might be washing around in the market. The iron-ore trade, which was long dominated by a small number of major buyers and sellers agreeing deals in closed-door negotiations—and where a derivatives market remains in its infancy—doesn’t have the same wealth of data available compared with commodities such as copper and gold, or even oil, another market awash with supply.
U.S. oil prices fell to a two-month low this week after federal data showed U.S. inventories of crude oil and refined products are at a record high.
High inventories can signal weak physical demand and many in the iron-ore market including Nev Power, CEO of world’s No. 4 exporter Fortescue Metals Group Ltd., point to moves in China’s port stockpiles when evaluating surpluses or shortfalls.
Finding ways of understanding where prices could be headed is arguably increasingly crucial as companies navigate a prolonged and extremely volatile downturn. That is the case across many commodities markets including oil and copper, although it is particularly pertinent in iron ore where trading data is sparse and surveys are relied on heavily.
“The port stocks are very visible,” said Paul Gray, iron-ore analyst at consultancy Wood Mackenzie. “They are one of the few indicators people can see very easily.”
Source: WSJ.com