China may have boosted iron ore imports to over 209 million tonnes for the first two months of this year. However, recent data confirms that weak demand from steel mills has led to a buildup of ore shipments at the country’s 45 ports.
Alongside the 100 million tonnes imported in December, total imports reached nearly 310 million tonnes for the three-month period. Nevertheless, the latest data indicates that portside stocks have surged to their highest level in a year.
A report from Chinese commodities website, MySteel, over the weekend revealed that iron ore stocks at the country’s major ports had reached 141.5 million tonnes, marking a nearly 2% increase, or 2.6 million tonnes, in just one week.
This report contributed to a decline in iron ore futures in Singapore on Friday, with the SGX price for 62% Fe fines closing at $US114.85, up $US1.60 per tonne over the week but down $US16 per tonne from the end of 2023.
As SGX prices hit yearly and six-month lows, concerns are mounting as supplies continue to accumulate. Monday morning saw a further decline in SGX prices to under $US113 per tonne.
With port stocks exceeding 140 million tonnes, there is a looming possibility that the iron ore price will soon test the $US100 per tonne level unless there is a rapid reduction in the overhang.
This belief has already led to declines in shares of major iron ore miners such as BHP, Rio Tinto, Fortescue in Australia, and Vale in Brazil. At Friday's close, BHP shares were down 13% for the year, with Vale shares falling more than 14%, Rio shares down over 12%, and Fortescue shares down by 11.6%.
Monday's slide in SGX prices further elucidates the weakness in shares of BHP, Rio, and Fortescue, with declines of 2%.
MySteel's report indicates that portside stocks have risen for 11 consecutive weeks, with arrivals outpacing clearances by steel mills and traders.
In fact, MySteel points to a concerning trend for Australian exporters and Vale: 60% of the stocks, nearly 86 million tonnes, belong to Chinese traders who increased their imports by 2.4%, or two million tonnes, in the past week.
Traders may opt to offload their iron ore stocks if on-sales remain sluggish and holding costs erode profits.
Of the total stocks, Brazilian iron ore has seen a sixth consecutive week of growth, rising by another 988,400 tonnes, or 1.9%, to 52.2 million tonnes, its highest level since March 2022. Meanwhile, Australian iron ore stocks increased by 386,900 tonnes to 60.1 million tonnes, marking their fourth weekly gain.
Ships to China departing from Port Hedland in January declined to just over 34 million tonnes from over 41 million tonnes in January 2023.
