China's Record Iron Ore Glut: Enough To Build 13,000 Eiffel Towers

Tyler Durden's picture

Earlier this week we discussed the reason for the recent drop in iron ore prices, which had been attributed to the discovery of massive data fabrication and misrepresentation of commodity production cuts in China (think OPEC), whose biggest steel-producing province was found lying about mandatory output reductions, and instead of curbing was in fact accelerating production.

A steel factory in Wu'an, Hebei province

As Reuters reported at the time, Hebei, China's biggest steel-producing province, launched a probe into steel overproduction in the city of Tangshan "amid concerns that firms have continued to raise output despite mandatory capacity cuts."

Tangshan is the heartland of Chinese steel production. The city is home to the headquarters of the state-owned Tangsteel Group, which in 2006 merged with other companies to form Hebei Steel Group, the second-largest steel producer in the world. Located around 100 miles east of the capital Beijing, Tangshan is on the frontline of the country's "war on pollution", and was seventh on the list of China's ten smoggiest cities in the first two months of this year.

 

Hebei was ordered by China's central government to investigate firms in Tangshan that have "restricted but not cut production, restricted production but not actually cut emissions, and cut capacity but actually increased output," the provincial dated March 25 said, and circulated by traders on Monday.

 

The notice, sent on Saturday, cites orders from President Xi Jinping and Zhang Gaoli, the vice-premier, for Tangshan to investigate the problem of falsely reported plant closures and rising steel output.

Fast forward to Friday, when the environmental protection ministry quickly found pervasive problems "including data fabrication and output curb failure" in air pollution checks in 1Q at some 3,119 companies or nearly 40% of the 8,500 companies inspected, according to a statement from the ministry. Among the companies names, Chalco’s Henan unit didn’t fully implement output curbs in heavy pollution days, according to findings of the inspection while an affiliate to BAIC Group found to have "not strictly implemented VOC emission standards." Amusingly, companies including a Foxconn affiliate in Langfang city tried to reject inspections The inspection covered more than 8,500 companies in regions including Beijing and Tianjin.

Ok, so China lied again; that in itself is hardly newsworthy. After all China lies about everything, from its GDP, to its gold holdings, to its reserve outflows, to the total debt in its economy.

However, for iron ore traders, the implications could be dire, as China's activity means that instead of reducing production to reach a demand equilibrium, it had merely been stockpiling iron ore inventory at various ports around the country, while giving the world the false impression that output, and thus the market, was tighter than it was in reality, sending iron ore prices nearly doubling over the past year - one of the primary culprits for the global reflation wave that has been misconstrued as a global economic recovery - even though in recent weeks iron ore prices have stumbled as China's ruse has finally been exposed.

The question then becomes what happens with China's unprecedented iron-ore stockpiles, especially at a time when Beijing is actively seeking to impose curbs on the housing bubble. For those unfamiliar, this is what China's total iron ore inventories look like as of this moment: they are now at all time highs.

That chart above, however does not do justice to China's inventory glut, so here is another attempt at putting it in context from Reuters, which writes that with enough iron ore to construct Paris's Eiffel Tower nearly 13,000 times over, China's ports are bursting with stockpiles of the raw material and some of them are demolishing old buildings to create more storage space, trading sources said.

Inventory of imported iron ore at 46 Chinese ports reached 132.45 million tonnes on March 24, SteelHome consultancy said, the highest since it began tracking the data in 2004. A third of the stocks belongs to traders and the rest is owned by China's steel mills, SteelHome said. That volume would make about 95 million tonnes of steel, enough to build 12,960 replicas of the 324-metre (1,063-foot) high Eiffel Tower in Paris.

Some ports, trying to manage their storage space, have in recent weeks rejected vessels carrying lower grade iron ore that is less preferred than higher quality material and could take months to clear, said a source at a foreign trading firm that has millions of tonnes of the steelmaking ingredient at Chinese ports.

"We have sent our people around the major ports in China and some are trying to find extra space. They're demolishing some abandoned buildings to create more space," said the source, who declined to be named because he is not permitted to discuss the matter publicly.

It's only getting worse: if iron ore stocks continue rising "we're going to reach maximum physical capacity at all ports in China by early June, said the source. "We saw some ports rejecting low-grade shipments which are very difficult to liquidate."

* * *

Meanwhile, having believed China's lies about production cuts and sending prices to a two and a half year high, global commodity traders are suffering from a case of accumulated buyer's remorse with global iron ore prices now just above $80 a tonne from a 30-month peak of $94.86 reached in February, largely due to the growing port inventory.

Prices surged 81% last year, bringing relief to miners after a three-year rout. The rally stretched into 2017, inspiring marginal producers to resume business and lifting supply as China's steel demand waned. Further falls in the price of iron ore risk shuttering Chinese capacity again. That could boost China's reliance on top-grade exporters Vale, Rio Tinto and BHP Billiton.

The recent price surge only made matters worse, with China's domestic iron ore production jumping 15.3% in January-February as a price rally last year extended into 2017, causing imported ore to pile up at the ports of the world's top buyer.

Needless to say, local merchants and producers are already starting to panic at visions of iron ore prices in freefall. Including another 40 million tonnes of iron ore at China's steel mills "that's too much of stock," said Li Xinchuang, vice chairman at China Iron and Steel Association. "It will be very dangerous for the price. That's what's very worrying about it," Li told Reuters at an industry conference on Thursday. Worse, Li said most of the stocks in ports were high quality iron ore despite perceptions in the market that the bulk of it was low-grade eliminating the ability to deny low quality ore.

An official at Jingtang port in Tangshan told Reuters there are 15 million tonnes of iron ore stocked there currently, not far from its capacity of 20 million tonnes.

Paradoxically, even as China's iron ore glut hits extreme proportions, China continues to import the commodity with Australian miner Fortescue Metals Group, the world's No. 4 iron ore supplier which ships lower grade material mainly to China, saying its deliveries to the country are "continuing as normal."

"While port stocks overall are at relatively high levels, Fortescue's share of those stocks aligns with our market share of imported ore into China," Fortescue CEO Nev Power said by email in response to a Reuters query.

A truck drives past piles of iron ore at the dump site of a port in Rizhao.

Chinese ports can refuse discharge of some shipments and it's up to the importer to find another port but costs due to delays would be borne by the importer, said a shipping manager for a Chinese trading firm. Still, slow demand could swell port stocks further as more shipments tied to Chinese mills' long-term contracts with miners arrive and traders scour the market for clients.

"We have a fleet of vessels on their way to China with no buyers. We're trying to find buyers," said the foreign trading source.

If no buyers are found, iron ore prices will plunge, resulting in another shock to China's manufacturing sector, leading to another collapse in cash flows, a surge in bailouts and defaults, and a fresh deflationary wave being unleashed on the rest of the world as China's wholesale inflation once again tumbles into negative territory.

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Vardaman's picture

Only communism could come up with the idea to produce even more into a glut.  Oh, wait.  Detroit...

knukles's picture

Oh wait ... The FED!

As LBJ woulda said; "Comunizzum fo mah fellow Hamercuns"  "Guns and Butter"

MEFOBILLS's picture

China isn't communist anymore.  It is not a centralized economy, with directives from above.  Even though the "state" told local producers to cut back, they still continued to expand.

Pricing feedback system in China isn't working.  It isn't working in the U.S. either.  No doubt if we looked into steel, we would find some money incentives in the system for industry to keep expanding.  If they were losing money, they wouldn't be expanding.

____________________

The chinese mind and their nature is different than the Japanese, even though they are both Hans.  Hitler considered the Japanese as honarary Aryans, meaning they had poetry, art, literature, honor codes, high trust, altruism, and high civilization.

The Chinese are lacking in honor codes.  They lack in Altruism. Like Jews, the Chinese can be very predatory for their in-group. Separate evolution has created differences in the Hans.  This means that this part of Asia will always be low trust, and that Japanese are more like Europeans in their nature.

 Ultimately, any society is a function of its people - including its underlying genetics. 

Russian's are you listening?  It is better to eject the Jew from Europe, and then join back up with Europeans.  (But, only after Europe has been de-parasitized.)

 

 

Teja's picture

News to me that the Japanese are Han. They use the same characters for writing, at least partly, but that is all. Also, your simplifications regarding national character are as much bullshit as if one said all Americans are hamburger-eating dumbnuts.

A. Boaty's picture

China stacking. Preppers?

auricle's picture

So, build 13,000 Eiffel towers. It would look cool as shit. Everyone would come to see it. 

Skateboarder's picture

Or... build one Eiffel tower that's 13,000 times bigger than the original. Who wouldn't want to take an elevator to ~13,000 ft for $50 per head?

Truther's picture

Let's see: 13000 bigger.

Original: 410 feet

13000 bigger - That's 13000x410= 5,330,000 feet

 

That's what I call a Fucking brain freeze melt-up.

Bungbo's picture

China already has an Eiffel Tower replica in Tianducheng.  Tianducheng is basically another one of China's ghost cities.

whatamaroon's picture

Then put wind turbines on those towers.

JuliaS's picture

Oh, they will build 13 000 of them. They'll be shaped like ICBM's and you won't have to go far see them.

gaoptimize's picture

On a system scale, that's nothing.  16 Psyche has ~500 million times more than that.

Buck Johnson's picture

Soon, very soon it will break and the cascade will be felt by ALL.

 

 

NewHugh's picture

The boss told them to stop steer ploduction.  They must not've ristened.

 

I know.  BAD BAD BAD...

orangegeek's picture

chi's 350% debt to gdp and commodity stockpiles

 

LMFAO!!!

 

this has to be good for the yuan...it just has to.  LMFAO!!!

 

*flush*

gdpetti's picture

Agreed... China lies about it's numbers, they are simply following our lead way too much, can't they come up with something new? Maybe if we start telling the truth, they will copy that? Do we even dare?

Dominus Ludificatio's picture

Chinese definition of production cuts. We  planned on building 1000 new steel plants but we are now going to build only 600,because we are cutting production. That should clear the air.l

silverer's picture

Wow. Just think of all the aircraft carriers, destroyers, submarines, missile launchers, heavy tanks, etc. that could be built with that steel. China might as well, as the US seems to be banking on a war whether anyone wants one or not.

Offthebeach's picture

If China follows American crony/union building practices,  those 10 year old ghost cities ought be ready to begin their forever repair and rebuild cycle, which should induce 120% full employment.

Krugman would approve.

SpanishGoop's picture

Just leave it lying around until you need it.

It doesn't rust or....

 

Non-Corporate Entity's picture

They've built islands. They have a new and much larger Disney World. They just found more gold. Jim Rogers and family are already settled in. The Arks in "2012" were in China. There's a new movie out about the protective Great Wall of China. They have newly built, empty cities. They went to Davos. They're obviously building an army of "Transformers" to protect us from the Decepticons.

gunzeon's picture

right .... so how come the Aussie stock market says different ?

Bohemond's picture

Ever have a Chinese-made tool break in your hand at a critical moment ? Me, too. Their metallurgy is not up to par. Give me a USA, British, German, Italian, Japanese,or Russian made tool. Even Indian tools are better.

truthalwayswinsout's picture

The Japanese, when they were on top of the world, lied their asses off about so many things, it was impossible to tell the truth.

Now take that with a population that is 20 times bigger and with people who tell 40 times the lies.

THAT IS CHINA.

When they collapse, it will be the greatest depression ever seen and will result in that country plunging into civil war.

fockewulf190's picture

The next collapse will be global.  This is just another black swan capable of triggering the Great Reset. 

Putrid's picture

Yeah,

but it's the same for ever country at this point. If any public figure--top economist or politican--came out now he'd trigger a panic and a huge kill off in the population: and probably get the blame too.

I see Trump taking the blame by the way.

hibou-Owl's picture

Questions: Have they paid for thr ore? Who's book is it on?

If they haven't converted it to steel, why? It means the steel inventory is full.

Something stinks, no one builds raw material inventory in a shrinking market and pays for it.

ali-ali-al-qomfri's picture

and they probably will build 13,000 Eiffel towers, because that's how you support the growth model projected by the central committy with asset creation. /s

cheech_wizard's picture

13,000 Eiffel Towers?

Just think of them as very ornate lightning rods. Every city should have at least two or three.

Standard Disclaimer: http://i.dailymail.co.uk/i/pix/2016/03/20/22/3262789700000578-3501699-A_...

You know if you could afford it, you'd have one on your property.

etudiant's picture

What a nothing burger.

Chinese steel production is about 700 million annually, so a 95 million ton inventory is about 7 weeks worth.

Sounds more like a shortage than a surplus, given that it takes a while to ship the ore to the mill.