Since iron-ore prices jumped 19 percent in a day back in March, the world's big miners and steelmakers have been waiting for the moment when China cools its blast furnaces and the bubble finally bursts.
There have been a few signs the party might be coming to an end. Ore delivered to Qingdao suffered its sharpest one-day fall in two months last Friday, and dropped in August for the first time since May.
Tracking of bulk carriers leaving Australian iron-ore ports suggests that exports of ore turned down sharply in July, Bloomberg data show. While the numbers aren't a perfect reflection of final export figures , they've worked well as a leading indicator of the official data over the past two years.
So has the crash finally arrived, or is it just a monthly blip?
The lull appears to contradict evidence that shows China's steel industry still running hot. The floor space of buildings under construction in Asia's largest economy continues to march upward and a gauge of manufacturing activity rose in August to the highest level in almost two years.
And while output from the country's steel mills has come off a little in recent months, it's only in line with the usual seasonal decline seen in China in the six months leading up to Lunar New Year:
It's too early to get a definitive picture of Australia's August exports, since shipments can only really be confirmed as leaving the country after several weeks at sea. But the preliminary data carry bad news for iron ore bears, suggesting a sharp rebound from the weak July figures to somewhere north of 76 million deadweight tons -- the highest since at least November 2014.
That's consistent with analysis by Bernstein's Paul Gait, who estimates that quarter-to-date iron-ore shipments are up about 13 percent from a year earlier on a global basis.
What's more, these shipments are being used. The inventory of ore at Chinese ports bust through the 100-million-ton mark in May and has kept rising -- but relative to import demand, the country's stockyards are only holding about 37 days of supply.
At some point, China needs to wean itself off its dangerous addiction to credit-fueled, construction-led growth. But the government's promised cutbacks in steel production keep failing to eventuate and in the meantime, fixed-asset investment in the sector is actually rising, not falling.
The causes of overcapacity in China's metal sector are deep enough that even Beijing's diktats are struggling to rein in the problem. This ship will take a while to turn around.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(An earlier version of this story was updated to correct tonnage data in seventh paragraph.)
It's based on the shipping measure of deadweight tonnage, rather than the metric tons tracked by the Australian Bureau of Statistics, and assumes vessels are always filled to capacity.
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