More on the Goldman iron ore short

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From Goldies yesterday:

1…we believe iron ore exports misfired slightly in April in both Australia and Brazil, the world’s largest exporters. In aggregate, we estimate the April shortfall in seaborne supply from these two countries was c.6Mt, roughly equivalent to the monthly supply from South Africa, the 3rd largest exporter. Meanwhile, Chinese steel mills have become comfortable with low inventory levels relative to previous years. This reduces the amount of working capital tied up in stockyards, but it also makes the steel industry more sensitive to supply disruptions. In order to compensate for the unexpected shortfall in spot supply, steel mills had to draw from inventory, while port stocks fell by 10Mt to 86Mt and the spot price rallied. However, a return to normalized export growth in Australia and Brazil is likely to result in a gradual increase in inventory levels and allow prices to resume their downward trend.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.