How long can China destock iron ore?

A couple of charts today from Morgan Stanley throw light on the question. First, iron ore inventories at steel mills:



Mills have destocked in recent weeks to 24 days of use. That is the bottom of the recent range. But with price momentum so strongly to the downside I don’t really see any reason for them to stop. Mills can run leaner inventories than this if they like especially as we exit the Pilbara cyclone season. My guess is that they will.

This is reinforced by the second chart which includes port stocks:



That’s still high. There is still inventory to attack prices if mills so wish.


  1. What is happening with expensive supply from Chinese mines?

    And if this isn’t being curtailed by market forces, but instead is being subsidised by the (local) government, what does this say about the commitment of the CPC to implement market reforms?

    I know its little consolation to us in Australia as we have the blow torch applied but from what I understand in effect the CPC are saving China a few cents on the price of iron ore but costing themselves dollars in terms of financial market confidence.

  2. Interesting to note though that as bunker oil costs are so low as reflected in the massive drop in the Baltic Index, the shipping companies can afford to travel faster to be competitive. This translates into shorter trips port to port, with the effect that less stock is required in China vs historic norms.

    If I/O can be delivered 5 days quicker then this equates to 5 fewer days stock holding being required. For perspective, 5 days is how much the holdings have come off since the start of the year.

  3. I see the mill inventory only counts small and mid-size mills… not the large ones.
    Given the push to consolidate into larger/cleaner mills, they will be destocking to zero.
    How’s the large mill inventory looking?