Seeking Alpha
Dr. Duru, One-Twenty Two (113 clicks)
Long/short equity, event-driven, homebuilders, currencies
Profile| Send Message| ()  

The Port Hedland Port Authority along the northern coast of Western Australia reported on June 10th surprising news on an iron ore shipment:

The largest ever shipment of iron ore has left Port Hedland with 256,450 tonnes headed for China.

The Fortescue loaded vessel, PSU Seventh, left on a draft of 18.84 metres on Sunday morning, 9 June 2013.

The vessel broke its own record for the largest single shipment of iron ore from Port Hedland, which was set on April 26 2013 with 255,816 tonnes.

This news comes on the heels of a vicious month-long price slide for iron ore. Note that the previous record shipment came in a month that featured a brief respite from a sell-off that began from the year's peak in February.

The Port does not report the value of the cargo, so we might have at least two interpretations - one from the demand perspective and one from the supply perspective: 1) the price of iron ore is low enough that Chinese buyers are increasing restocking efforts after extremely strong levels of steel production drew down inventories, or 2) the price of iron ore will soon plunge much further and heavily leveraged miners like Fortescue are very eager to sell as much as possible while they still can at current prices. The second interpretation certainly seems appropriate for the April record shipment, but I lean toward the first interpretation only because prices of iron ore are now loitering around the 2013 averages often cited throughout this year in various projections (I covered these in January of this year in "Don't Overplay the Recovery In Iron Ore Prices").

Supporting the demand perspective for explaining this large shipment is a recent Reuters story reporting the large amount of iron ore exported from Australia to China in May while prices were tumbling:

Exports of iron ore to China from Australia's Port Hedland, a strong indicator of Chinese industrial activity, surged 21 percent in May, from April, to hit a record high…Ore shipments to China climbed to 23.3 million tonnes in May, from 19.3 million in April…Shipments were up an even larger 34 percent on May last year.

(Click here for Port Hedland's detailed import/export summary by destination for May).

No wonder The Reserve Bank of Australia (RBA) does not have a hot panic button for plunging iron ore prices.

Meanwhile, the plunging Australian dollar (FXA) is making Australian iron ore even cheaper by the day.

(click to enlarge)

The Australian dollar on the edge of a major crescendo

Source: FreeStockCharts.com

I earlier argued that the Australian dollar is reaching some kind of crescendo. It seems even clearer now that the timing of that final washout in the currency will be a complex interplay between expectations for another RBA rate cut in July; Chinese steel production, steel prices; and iron ore prices, inventories, and shipments. With so many related extreme movements and levels happening at once, the crescendo should prove quite sharp and abrupt. This move could prove particularly painful if iron ore restocking somehow ends before prices begin a recovery.

Be careful out there!

Source: A Record Iron Ore Shipment As Prices And The Australian Dollar Plunge

Additional disclosure: In forex, I am net short the Australian dollar