Overnight the sport iron ore price got smoked, losing over 6%, with the decline the largest recorded in percentage terms since May 30 last year.
While there is no doubt conditions for China’s steel sector are deteriorating sharply — the nation’s steel industry PMI slumped to 37.4 in June – there is another factor contributing pressure on the iron ore price at present: a huge increase in seaborne export volumes.
The chart below shows iron ore export volumes from Australia’s largest export terminal, Port Hedland, over the past year.
As you can see, exports rose to a record-high 38.36 million tonnes in June, an increase of 14.2% on the same period last year. Those going to China jumped to 32.6 million tonnes, also a record high, with volumes 11.7% higher than a year earlier.
The growth in exports in recent years has been phenomenal. Only five years ago iron ore exports totalled 15.3 million tonnes with those going to China 10.6 million tonnes. Based on the export volumes data released for June 2015, that represents increases of 151.1% and 208% respectively in just five years.
While a massive increase, it is has been overshadowed by an even greater decline in the spot price. Having averaged $141.82 a tonne in June 2010, the spot price has now fallen to $55.63, representing a decline of $86.19, or 60.8%. That’s certainly weighing on income generated from Australian iron ore exports, something demonstrated in the chart below.