Stockpiles of iron ore in China are approaching record levels
With the Baltic Dry Index crashing close to 50% last week alone and the first victim of this crash, Ukraine's Industrial Carriers, filing for bankruptcy, sadly there's plenty more bad news in store.
As Chinese mills refuse to negotiate with Brazillian ore giant Vale over an unorthodox second iron ore price rise this year it emerges they are in a strong position to hold out.
According to Ms Jing Ulrich, the Hong Kong based managing director & chairman of China Equities with JPMorgan, stockpiles of iron ore in China are approaching record levels as the country sees less demand from downstream consumers.
She said in a note to clients that a number of smaller steel companies are facing credit constraints, which are leading to delays in raw material shipments, exacerbating inventory stockpile problems.
Ms Ulrich said that, "The fundamental downtrend in Chinese metals demand began before the impact of the Olympics came into play and prior to the intensified financial crisis of recent weeks. With the construction and manufacturing sectors slowing markedly, a period of time will be needed to digest surplus stockpiles of key metals."
Mirroring the climate in the Chinese property and manufacturing industries, Ms Ulrich said the larger players may stand to benefit from inevitable consolidation among metals producers. She said that, "With a steady stream of negative news dampening sentiment across the commodities complex, market players are hoping for supportive government measures to arrest the decline in commodity and equity prices."
As of October 10, China spot steel prices had fallen by 37 percent, iron ore prices by 44 percent, and aluminum prices by 33 percent from their peaks.
Standard Chartered Bank economist Stephen Green said the falling prices were due to a combination of the slowing global economy and distorted domestic inventory. "Base metal prices are distorted by a huge inventory overhang. Once this has been worked through, demand growth will look healthier," Green said.