Interpretation of iron ore port inventory changes and price movements from the inventory cycle

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In recent years, the steel industry overcapacity serious, weakening downstream demand, the industry boom of the poor and difficult to a significant improvement in the short term.
In this context, the poor performance of the steel industry’s overall profitability, cost control and other factors become important elements influencing the profitability of steel companies, and further a certain impact on corporate credit quality.
Iron ore volume and price as the upstream end of the steel industry costs, impact on the industry cost control and greater profitability, we are usually more concerned about the port inventory index continued to increase in recent years, the early history of the peak is reached, what causes high
the port stocks, how to see from this indicator relations status quo, inventory and price in the industry and how, this article will start iron ore port stocks index, its current situation and analyze causes of high prices, combined with the inventory cycle principle
predict future price trends.

iron ore port stocks have been one of the key indicators of the steel industry is more concerned about is the iron ore fundamentals reflect the most intuitive.
Port inventory data from the mysteel and West of the Shinkansen platform data, general statistical survey by the port iron ore stocks (mainly import port statistics are more careful, because the small port is limited by the throughput, there may not be statistically certain timeliness
in time) from.
From the point of view constitute port stocks, which is divided into three parts, steel mills agreement is mine, that is piling up after transported to the port of large steel enterprises imported ore, steel stocks can be understood as a forward; mine as part of the trade,
including traders stockpile ore mine and financing; in addition, the port inventory includes both stock prices partially mine.

Since 2006 the establishment of the statistical data, domestic iron ore port stocks from the initial 4,000 tons / week, shock all the way up, in 2014, briefly exceeded 100 million tons / weeks, this year
in the second quarter reached more than 140 million tons / historical peak week.
The triumph of the port inventory shows what, how to form?
Whether there is a pattern stock index data, the impact on iron ore prices it?

a, mechanism of action

supply and demand for port stocks at present, as the market environment and mining enterprises, steel prices, traders and other market players Strategies
changes, inventory changes reflect the fundamentals of information is also more complex.
Because iron ore downstream steel industry has a strong cycle property, subject to its own downstream of real estate, infrastructure and other sectors of intermittent, seasonal and other characteristics affect steel demand also showed some fluctuations.
As upstream, end of the iron ore supplied to the output capacity from the investment with a certain lag, while having characteristics of continuous production, therefore, is formed of iron ore port stocks, often needs continuity and supply volatility of
the conflict between that port stocks showed a certain periodicity.

According to the law of supply and demand and changes in inventories, the inventory cycle can be divided into “passive go to the library – replenishment initiative – passive replenishment – take the initiative to go to the library” and other stage.
Demand is the root cause of each stage of the boot, inventory following the demand and price changes, rather than the independent variable is the dependent variable, and provide incremental incremental supply or demand, thus causing essential element of inventory changes to demand.
Specifically, the economic cycle initial demand gradually picked up, supply is still a chance to react, with the increase in sales and decline passive, that is passive to the inventory stage; demand driven commodity prices go up, encourage enterprises to actively expand production restocking, into active supplement
inventory stage.
With the economic cycle peaked into the downstream section, demand is less than supply caused by the accumulation of inventory, restocking into the passive phase.
Then there would appear volume and price situation, companies to reduce production, reduce inventory initiative, the initiative to enter the inventory stage.

from Stock
cycle of long-term effects of port stocks, due to inventory behavior is mainly dominated by corporate earnings, and earnings, price formation by the price determined by supply and demand, and supply continuity, the downstream demand is the driving factor in inventory fluctuation, in essence, is the production of
Analyzing and investors expected demand, at the same time, continued expansion of the supply side also makes inventory shift hub.
As can be seen from Figure 1, it represents the downstream demand for crude steel production in certain guiding role of changes in iron ore port inventory.
The rise in crude steel output stage port stocks go up and rapid growth, such as the first half of 2008, the first half of 2014 and the first half of 2017; the decline in crude steel production stage, often accompanied by rapid port stocks
fall, as the second half of 2008 and the first half of 2015.
Therefore, when the expected improvement in demand, prices rise into the channel, the producers and investors replenishment wishes clear, with port stocks often rise with the fall, when demand is expected to decline, producers and lack of willingness of investors replenishment, inventory corresponding port

Second, the port inventory status

review changes in iron ore port stocks, before 2008, the iron ore port stocks only about 4,000 tons / week; in 2009 by the bailout funds pulling,
iron and steel industry into production capacity expansion, the iron ore port stocks also surged corresponding to nearly 80 million tons / week, this level has been stable until 2011.
In 2012, by better demand pull, the port inventory upgrade again, briefly reach 100 million tons / week of the order.
2013-2014, by the downstream demand fluctuations, the port inventory fluctuations, first quickly dropped to 8,000 tons / week or less, then rebounded to more than 110 million tons / week.
2015, by the domestic steel production capacity excesses impact, port stocks dropped to 8,000 tons / week.

Since 2016, with the improvement of the overall profitability of the downstream steel industry, the market demand is expected to improve, the supply-side capacity sustained release, drove all the way to port stocks rise, reaching 140 million tons in June 2017 / week
the historical peak.
Overall, stock index rose by demand fluctuations have ups and downs, as well as by the supply-side capacity sustained release of inventory hub was a shock rise.
Aspects of enterprise supply from the mine below this article, demand for steel prices, traders hoard goods and inventory structure to analyze the possible formation of ore currently high inventory reasons.

Third, how to form a high inventory?

(a) continued to force feed end

is formed from a high inventory reasons, first of all imports of iron ore per year
Continued to increase.
As it can be seen from Figure 3, 2013 imports of iron ore annually, in 2017 from January to June a total iron ore imports of 540 million tons, the cumulative increase of 9.22%.
In addition, a year in quarterly iron ore imports also showed an increasing trend, due to the rainy season in Brazil and Australia were in hurricane weather in the first quarter, the impact on shipping, so the main importer of mining enterprises to focus on delivery time before Christmas, so
push the fourth quarter iron ore imports, imports of iron ore in the second half is expected to increment it is still expected to maintain.

from the primary
national shipments of imports of view, in addition to India due to the national policy to limit iron ore exports since 2015 is no longer outside China’s exports of iron ore, Brazilian iron ore shipments remained relatively stable in recent years, the level of Australian iron ore
shipments is rising, even in 2015 iron ore prices dropped significantly in the environment, both total iron ore shipments have not been reduced.
Since 2017 iron ore shipments overall stable at a high level, the second quarter of 2017, Pakistan and Australia iron ore shipments to total 299 million tons, up 019 million tons compared with the first quarter of 280 million tons.

(b) the overall recovery in demand, structural changes

1, is expected to improve demand for iron ore in the active phase of replenishment

since 2016, the gradual recovery of demand,
market demand is relatively optimistic expectations, the superposition production and replenishment requirements, restocking of iron ore in the active stage, the price rise.
To traders replenishment, for example, in our country, an import qualified traders have long association with getting goods from the hands of miners, resell mills and small traders.
According to the current index pricing mechanism, mine general agreement determine the base according to Platts prices before signing the contract in January, and then consider the quality difference, other factors tariffs, port charges and other comprehensive agreed, therefore changes in the spot price agreement price represents a certain time
stagnation, and the trend is more gradual.

ore price slump in the cycle, the cost of getting goods traders most of the time higher than the spot price, the greater the risk of store goods, a lot of traders losses and bankruptcy.
With ore prices bottomed out in 2016, import traders profit margins also gradually opened, store goods again led the enthusiasm of traders.
Since 2017, with 62% CFR price index continued to rise, traders on the future iron ore demand is relatively optimistic, thereby increasing the upward pressure port stock.
According mysteel data show that as of September 1, the country’s 45 ports in stock trading volume of 46,965,400 tons ore / week, accounting for 34.99 percent of the country’s 45 port stocks.

the number of mills inventory stocking inventory days shorten lead port

showing a trend shift in the iron ore port inventory and steel stocks to some extent.
In recent years, with the reform of the steel industry accelerated Forced change the business model of steel enterprises, steel enterprises lack the early management of plant inventory, maintain higher inventory levels; but, under adequate supply of iron ore in the overall environment,
enterprises are more likely to order for production and inventory management of dynamic mode, the active inventory scale compression, making the steel inventory reduction, resulting in a short time is difficult to port inventory backlog consumption.
It is evident from Figure the average number of days available under domestic large and medium steel mills iron ore imports in 2015, most steel mills to maintain iron ore stocks in more than 30 days, but after 2015 to date, the number of days available for iron ore
It can be maintained for about 20 days (before and after the Spring Festival will be seasonal stockpile steel, blast furnace and due to the Spring Festival in multi-point inspection, resulting in short-term inventories increased in February).

scrap substitution effects appear, assists port stocks overlay

the end of 2016, intermediate frequency furnace production capacity to gradually withdraw from the market, involving production capacity of about 50 million tons (section IF furnace production capacity is not included in the statistics caliber), the National IF according to Mysteel estimated 2016
furnace steel scrap consumption is about 78 million tons, the portion of the flow of the converter scrap (steel scrap used in an amount of 10% -30%), and electric arc furnace (steel scrap used in an amount of 40% -70%), the amount of scrap will inevitably lead to the arc furnace and the converter
And in a short time, because the converters and electric arc furnace is difficult to digest such a large amount of scrap, scrap or reduce costs.
Therefore, in the current high prices of iron ore and coke environment, pig iron refining cost is more rigid, the part becomes a powerful alternative to scrap or iron ore, iron ore undoubtedly piled high port stocks to some extent.

4, the stock structure change – when the status of the current high inventory of high-grade ore-based

analysis, we find that the stock structure has been changing in 2015 as most steel prices in
profit status, use of low-grade ore more steel mills to reduce production costs.
Since the third quarter of 2016, coke supply, resulting in rapidly rising prices, steel mills generally take measures to improve the grade of iron ore to guarantee the production and control costs, increase high-grade iron ore demand, prices rose significantly greater than the low-grade iron

from the production experience, every increase of 1% grade iron ore, coke can be reduced 2%, 3% to improve the iron yield, and therefore affect the efficiency and amount of iron ore to iron link is very
large steel companies need to continuously control the ratio of this part, and the amount of iron ore and coke to control costs.
To evidence from a different grade iron ore spread trends, by 2015, 62% grade and 58% grade spreads stabilized at between $ 10-20, 65% and 62% Fe grade spreads have stabilized at $ 5- $ 10 range
and the trend is more gentle.
Since 2016, high-grade ore by stimulating demand preference, 62% and 58% grade iron ore spreads widen, the highest close to $ 40.
Therefore, for some time, is expected coal prices will continue high, may cause steel prices continue to prefer high-grade ore to increase the output of pig iron, port stocks of high-grade ore declined faster than the low grade ore.
Superposition of high-grade ore on the basis of low-grade ore consumption weakened on continued supply will undoubtedly increase the port inventory accumulation.

Fourth, look at the price trend from the inventory cycle

since 2010, the global iron ore pricing commonly used by Platts price index pricing, we observe port inventory data and 62% CFR price index
trends, not difficult to find in April 2010 to October 2015, the port has experienced a change in inventory two complete inventory cycle, namely “active replenishment – passive replenishment – take the initiative to go to the library – library passive go.”

a first period, April 2010 to April 2013, after 36 months, the second period, April 2013 to July 2015, after 27 months.
Although the length difference of two periods, two periods but good symmetry, i.e., each cycle stocks rise time and fall time of substantially more evenly.
First, in the first cycle, 2010.7-2011.9, the price index rose, stock performance continues to increase, in active replenishment stage; 2011.9-2012.7, prices tumbled, stocks showed a small increase and stabilize close to 100 million tons
/ week, passive replenishment stage; 2012.7-2012.10, the price index accelerated decline, the effect is obvious to the inventory, take the initiative to go to the library stage; 2012.10-2013.2 price index bottomed out, passive inventory reduction.
The second cycle, 2013.6-2013.9, the price index rose, stocks initiative to increase; 2013.9-2014.9, prices tumbled, stock passive increase; 2014.9-2015.3 prices to accelerate the decline of the initiative to inventory; 2015.4-2015.10, prices rebounded slightly
, passive inventory to melt.

In the first two complete cycles, we find that the entire inventory cycle dominated by the demand, supply and price of the game from the first to inventory changes, stock prices with the rise with the fall.
But when the stock reaches a certain order of inventory or supplies will play a role in the industry supply and demand of a certain disturbance, and thus play fueled utility help or commodity prices.

We found that in the new round of the inventory cycle in 2016 to the first half of 2017, with the rising downstream demand, the steel industry improved profitability in steel production demand and restocking demand double
under overlay, inventory replenishment cycle in the active stage, the price index rebounded bottom; but since the second quarter of 2017, the price index fell from high and volatile, then port stocks also began in June (140 million t / week) to slow down from a high point.

future replenishment of continuity and robustness, in the final analysis depends on the marginal improvement in demand for healthy or not.
In the economic upturn, the marginal effect of significantly improving demand, gave birth to strong inventory cycle, the replenishment will continue; marginal weakening in demand, the replenishment space is restricted, sustained relatively weak.
When determining the stage inventory behavior, often requires a combination of changes in demand and current inventory position to judge.

From the inventory cycle perspective, we expect the second half, the release of the effect of policies based on regulation and lower demand for high base effect, such as real estate and infrastructure investment growth will slow, driving the industry growth rate of decline in steel, iron
the marginal ore weakening downstream demand, while supply-side capacity release still has a certain inertia, coming up inventory space will be subject to certain constraints, sustainability poor.
In addition, due to the demand for both stocks yesterday also supply tomorrow, so when inventory at a relatively high level, high inventories probably more play the role of supply and thus counteract the price, a certain constraints on the rise in prices.
Overall, the current inventory of high volatility and downward price trend or indicates that iron ore will enter the passive restocking phase, the future prices tumbled.

particular iron ore prices, due to rising iron ore import prices will lead to some domestic and overseas non-mainstream mine mine to resume production, according to our forecasts for iron ore prices on the articles ( “supply and demand
as the key link, the cost for the collar to see iron ore prices go from here “), we believe that the current iron ore price will not last more than domestic mine average cost of $ 80 / ton price resumption of production, future prices will gradually return to $ 60 / ton
about the price of the hub.

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