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China ups pressure to cut iron ore piles at ports

by Lloyd's List Correspondent | 11:56AM, 22 May 2008


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Pressure to reduce iron ore stocks at Chinese ports is unlikely to have any immediate impact on booming capesize rates, according to brokers, who said that market sentiment and a drop†in paper trades would have more impact.

The China Iron and Steel Association and the National Development and Reform Commission, China's highest decision-making body, have pushed the industry to clear surging ore stocks that have climbed to 79.2m tonnes.

The association confirmed that it asked member companies to cut the volume of iron ore stored at ports. The group also said firms should further limit iron ore imports and threatened to suspend or revoke the import licences of firms who intentionally stockpile ore.

About a third of the total amount of ore at ports is owned by iron ore traders who are hoping to take advantage of higher ore prices if China reaches a price†agreement with two Australian producers, Rio Tinto and BHP Billiton.

“Traders are holding stocks to obtain a better CIF price, but it's causing cash flow problems for them and congestion at ports,” a Hong Kong-based broker said.

Officials from the National Development and Reform Commission recently met†traders and representatives from steel mills and ports, to find out why so much iron ore has been accumulated at ports and find the best way to reduce stocks.

A Hong Kong broker said it was unlikely the China market would be flooded with iron ore, a move that could lead to a significant reduction in shipping fixtures.

There is more likely to be a gradual reduction in the number of fixtures over the coming two or three months.

The volume of ore held at ports is about double the amount usually stockpiled.

The association said the huge amount, equivalent to 20% of China's total iron ore imports this year, is causing difficulties for ports, which are running out of storage space for ore.

The association said overall, China's iron ore imports climbed 15% to 153.5m tonnes in the first four months of this year, which was “much higher than the demand from steel mills”.

Figures show that about 62m tonnes was stored in mid-April, but this had climbed to 79.2m a month later.

Congestion delays are forcing ships to wait up to 10 days to berth.

Brokers said these delays had helped fuel the surge in capesize rates after fronthaul rates hit US$288,000 per day by Wednesday morning.

But they said that while port delays may have accounted for 10% of the increase in capsize rates over the past week to 10 days, most of the increase was†due†to an increase in Pacific, period and paper trades.