BEIJING: The holdings will probably surge as low-cost supplies rise and steel mills rein in output before and during a nationwide, week-long holiday next month, according to China Merchants Futures. Both Citigroup and Australia & New Zealand Banking Group say the threshold for the stockpiles is set to be exceeded, flagging the risk that it’ll add to pressure for prices to drop.
“The increase will be driven by higher shipments from Australia and Brazil, especially in the final months of 2015, against a seasonally weak period for China demand,” Zhao Chaoyue, an analyst at China Merchants Futures, said by phone on Monday. Zhao predicted the target may be breached before the Lunar New Year break, which starts February 8.
The inventories rose 1.7 per cent to 94.55 million tons last week, an eight-month high, according to data from Shanghai Steelhome Information Technology Co. Holdings which have expanded for the past four months to climb above their five-year average of 92.7 million tons last topped the 100 million ton mark in March.
Iron ore prices have been pummeled over the past three years as supplies from exporters including Rio Tinto Group and BHP Billiton and Brazil’s Vale expanded while China’s steel output and demand fell. Citigroup, which last week raised the possibility that iron ore may sink into the $US20s a ton, has said the port stockpiles will probably climb above 100 million tons in the first half before tapering lower.
“I don’t think there’s an appetite for people to hold that much inventory on a sustainable basis,” Citigroup head of Asia commodity research Ivan Szpakowski said in a January 14 interview. “I don’t think traders or steel mills want to hold that much inventory, especially if demand is weak and prices are weak.”
Mills in China typically join other industries in scaling back output over the Lunar New Year break as construction slows and workers take time off. After the holiday, more mills will resume operations, lifting demand for ore and cutting the port holdings, according to China Merchants’s Zhao.
Imports of iron ore by China increased 17 per cent to a record 96.27 million tons last month, according to customs data. The same month, miners in Brazil shipped 39.5 million tons, an all-time high and 41 per cent more than in November, government figures show.
“Stockpiles are likely to rise in February,” ANZ analyst Anurag Soin said in an email on Monday, predicting that the 100 million ton figure will probably be topped next month. The increase would be driven by strong shipments from overseas as well as slowing demand from real estate and infrastructure, Soin said.
Ore with 62 per cent content delivered to Qingdao advanced 3.7 per cent to $US42.66 a dry ton on Monday after dropping 2.4 per cent last week, according to Metal Bulletin. The commodity sank to $US38.30 on December 11, a record in daily prices dating back to May 2009.
