Iron ore stockpiles in China, the world’s biggest buyer, climbed to a record as traders increased imports to use the steel-making raw material as collateral for credit and domestic demand remained weak.
Inventories at ports were 100.25 million metric tons last week, exceeding 100 million tons for the first time since July 2012, according to data from Shanghai Steelhome Information Technology Co. Reserves increased 16 percent in 2014.
Spot prices in China dropped 8.2 percent this year even as imports surged to a record last month. The increase in inventory levels creates near-term downside risk to iron ore prices, Goldman Sachs Group Inc. said in a Feb. 11 report. Money-market rates have also increased. The seven-day repurchase rate, a gauge of interbank funding availability in China, in December climbed to the highest since a record liquidity squeeze in June.
“Imports kept piling up at ports as more cargoes are being hauled in for trade-financing deals,” Gao Bo, chief iron ore analyst at Mysteel.com, a researcher in Shanghai, said by phone from Beijing today.
Iron ore imports into China, which accounts for more than 60 percent of the seaborne trade, rose to 86.83 million tons in January, from 73.38 million tons in December and 65.54 million tons a year earlier, according to customs data.
Ore with 62 percent content delivered to the Chinese port of Tianjin dropped to $120 a dry ton on Feb. 11, the lowest since July, and closed at $123.20 on Feb. 14, according to The Steel Index Ltd. Futures for May delivery today gained 1.4 percent to close at 873 yuan ($144) a ton in Dalian.
Funding Difficulty
Steel mills and trading firms in China are contending with increasing difficulty in getting funding, said Mysteel’s Gao.
“The funding situation in the steel industry was getting worse last month,” he said.
The weighted average lending rate in China was 7.2 percent in December, up from 6.22 percent a year earlier, central bank data released earlier this month show. In December, 63.4 percent of loans had interest rates above benchmarks, up from 59.7 percent a year earlier, according to the central bank.
Stockpiles of steel products also rose as construction activity remained weak after the Lunar New Year holidays, Gao said. Traders’ stockpiles of rebar, a building material, jumped by 65 percent this year to 8.55 million tons last week, according to Shanghai Steelhome.
China’s economy, the world’s second-biggest, is forecast to expand 7.4 percent this year, the slowest pace since 1990, compared with 7.7 percent in 2013, according to economist estimates compiled by Bloomberg.
Australian Supply
Iron ore may drop more than previously forecast to $118 a ton this year as China will be unable to absorb record supply from Australia as growth slows, Judy Zhu, an analyst at Standard Chartered Plc, said last week.
Prices may average $119 a ton this quarter, $110 in second quarter and drop to $100 in the final period of this year, Goldman Sachs analysts led by Christian Lelong said in the Feb. 11 report.
Mine supply of iron ore reached a record over the fourth quarter of 2013, “with the natural destination being China,” Macquarie Group Ltd. said in a Feb. 13 report. “With inventory build being evidenced on the back of higher imports, this will act as a buffer to buyers in the coming months,” it said.
China’s shipments from Australia’s Port Hedland, the largest ore-export terminal, rose 27 percent to 23.3 million tons last month. Increased supply from Australia, the top ore shipper, may push the global seaborne surplus to 94.2 million tons this year from 9.1 million tons in 2013, UBS AG estimates.
Rio Tinto Group (RIO), the world’s second-biggest exporter, said last month that output rose 7 percent to 55.5 million tons last quarter from 52 million tons a year earlier. Fortescue Metals Group Ltd. is boosting capacity to 155 million tons by the end of March.