Chinese iron ore imports

Chinese customs data track the country’s iron ore imports. Tracking this data is important because it gives you a good sense of the appetite for imported ore among Chinese mills and traders that consume about two-thirds of seaborne iron ore.

This information impacts iron ore players involved in the seaborne iron ore trade, including Rio Tinto (RIO), BHP Billiton Limited (BHP), Vale SA (VALE), and Cliffs Natural Resources (CLF). The SPDR S&P Metals and Mining ETF (XME) invests in this commodity, so it’s equally affected by the data.

Chinese iron ore imports for October came in at 67.4 million tons, or 15.0% lower than in the previous month. Imports are up 13.4% year-over-year. Combined imports for the first ten months of the year were 778.86 million tons, up 16.4% year-over-year. This is the first November decline in the country’s iron ore imports since 1998.

This shows weak underlying demand from steel mills. Some analysts said prices could face more downward pressure in the fourth quarter. This is likely if ore supplies continue to rise and construction activity in Chinese provinces begins grinding to a halt, as it tends to do during the winter months.

Oversupply

Chinese domestic steel production can’t keep pace with the increasing supply from the four major players. Ultimately, the supply glut situation won’t improve until some capacity is shut down by the high-cost Chinese iron ore mines.

Having said that, Chinese domestic iron ore is generally a lower-grade quality than imported ore. China’s environmental regulations may force steel producers to rely more on high-quality imported ore to reduce the pollution caused by refining low-quality domestic ore.