Feb. 23: China Steel Data Portends Slowdown?

The Maanshan Iron & Steel Co. blast furnace, near Nanjing, China.

China's steelmaking industry, so tightly linked to the share-price valuations of dry-bulk shipping lines, transmitted a few worrisome signals in late February, at least according to some observers.

At issue was the amount of iron ore that has accumulated in stockpiles at Chinese ports over the last few months. The total amount reached 80 million metric tons that week -- near an all-time record -- according to Jeffrey Landsberg, an independent analyst and data cruncher who specializes in studying the dry-bulk shipping trade.

On the output end of China's blast furnaces, stockpiles of flat steel and products used in construction had also steadily expanded over the prior two months, swelling to 15.4 million tons, up 18% since Dec. 31 alone.

Landsberg, who gathers his numbers from steel-industry sources in China for his own research shop, Commodore Research, pointed all this out, at the time, in a report. Increasing supplies of iron ore at the ports, where it awaits shipment to steelmakers, along with rising inventories of completed steel, would likely lead to a short-term drop in iron ore demand over the next few weeks, Landsberg wrote.

When it comes to the dry-bulk shipping trade, especially those companies that charter the humongous Capesize ships that specialize in iron-ore transport, "the expected slowdown could not come at a worse time," Landsberg said.

Indeed, a well-documented glut of newly delivered dry-bulk vessels had led to a collapse in shipping rates. The going daily rate for a Capesize ship on the spot market had hovered around $6,000 for weeks, well below the amount it costs to operate such vessels, estimated at between $7,000 and $10,000 a day.

Landsberg, for his part, didn't believe that the most-recent stockpile data prefigured any kind of doomsday scenario: that the fast-growing Chinese economy would have a dreaded "hard landing" due to the inflation-curbing moves put in place by the country's authorities.

In an email, Landsberg told TheStreet, "That said, the stockpiles need to be monitored closely -- and could end up being an early sign of something more substantial brewing in China, but I don't think so... I think the Chinese economy will continue to expand rapidly but we shall see."

Other observers of raw materials markets were optimistic. "We've seen iron-ore pricing remain firm. That's a good indicator," says Anthony Rizzuto, the metals and mining equities analyst at Dahlman Rose in New York. The analyst said that the bump in stockpile amounts likely occurred as a kind of natural move by iron ore buyers ahead of the Lunar New Year holiday in China. He said that Chinese consumer demand remains strong, which will buttress steel production.

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