Axiom’s Gordon Johnson takes a look at China’s iron ore appetite Tuesday, writing that with just a few days to go in 2016, he estimates that imports to China are up 78 metric tons this year, while iron ore consumption is only up 10 metric tons (with domestic supply flat). So where is all the excess?

Johnson says that no matter the answer, the bigger reality is that it’s another warning about ongoing Chinese demand for steel. Therefore, his theory is that this excess supply poses “acute” risks to iron ore prices, hence his underweight rating on the sector.

More detail from the note:

According to data from the Nat. Bureau of Statistics, China’s new residential home prices grew, on avg., in 55/70 cities in Nov., +58bps m/m, the lowest since Feb. ’16 (prices in tier 1 cities grew the least since Feb. ’15, +15bps m/m). For existing homes, prices rose in 47/70 cities m/m, +34bps on avg., the lowest since Jan. ’16. What’s more, residential space sold in Nov., +7.7% m/m, grew by the least since Jan. ’16, w/ the proportion of tier 1 provinces making up the lowest since Sep. ’14. While the cause of this effect, as we see it, is due to buying restrictions imposed across >17 cities, we contend the worst is yet to come – to wit, we believe slowing growth in property sales/prices will feed into new housing starts (i.e., ~36% of China’s steel demand) and, thus, see warning signs abound.

Weather Could Lend N-Term Support to Prices For Iron Ore/Coal. Given: (1) a cyclone over Australia’s Port Hedland, implying iron ore exports from Australia’s busiest port in Dec. could be curbed, & (2) China suspended all operations at its bustling Tianjin Port for 3 days last wk due to severe air pollution, we posit supply shocks could bring n-term support for iron ore/coal prices. On the other hand, w/ spot prices already detached from fundamentals, support could be muted.