Iron Ore May Fall on Chinese Power Shortages, Deutsche Bank Says
Iron ore may fall next week on speculation power shortages in China, the world’s biggest importer of the steelmaking raw material, will force steel mills to cut output, Deutsche Bank AG said.
“Continued softening” lies ahead, though prices “could find a point of stabilization,” Thomas Baldwin, an iron-ore, freight and steel trader at Deutsche Bank in London, said in a note e-mailed yesterday.
China may face an electricity shortfall of 30 million kilowatts during the summer peak this year that might reduce industrial output by 3.6 percentage points, analysts including Lu Yanjin at Industrial Securities wrote in a report today. That prospect may discourage steel mills from building stockpiles of iron ore.
“With potential power shortages, the uncertainty is meaning the mills are operating on a hand-to-mouth basis,” Baldwin said.
The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin last gained on May 4 and has since dropped 4.4 percent to $175.30 a metric ton, Steel Business Briefing Commodities Research data show.
Iron-ore prices have risen to “bubble” levels that will burst as new mines create an oversupply, according to Baosteel Group Corp., China’s second-biggest steel producer.
“There is a bubble in this market, many are gambling,” making acquisitions and investment expensive, Chairman Xu Lejiang said in an interview in Shanghai, without saying when prices would drop. “Everyone who has money is rushing in to invest in iron ore.”
Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three biggest suppliers, plan to spend $45 billion on mines. Global exports of iron ore may gain 28 percent to 1.4 billion tons by 2016, the Australian Bureau of Agricultural and Resource Economics and Sciences has forecast.
To contact the reporter on this story: Alistair Holloway in London at aholloway1@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net
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