Iron ore’s biggest decline in 15 months may worsen as the economy slows in China, the largest importer, the European debt crisis persists and BHP Billiton Ltd. (BHP) and Rio Tinto Group increase production, analysts said.
Ore for immediate delivery may drop to $140 a metric ton by year-end, according to Macquarie Group Ltd. analyst Bonnie Liu in Shanghai. That’s down 5.2 percent from $147.70 yesterday, data from The Steel Index Ltd. show. The price may fall to the mid to low $140s, said Australia & New Zealand Banking Group Ltd.
China, the world’s biggest steelmaker, grew at the slowest pace since 2009 in the third quarter on weaker export demand and monetary tightening as steel prices dropped to a 10-month low and port ore inventories held near a record. Cheaper ore -- also sold through quarterly contracts -- may limit profit growth at Vale SA (VALE3), Rio Tinto and BHP Billiton, the largest producers.
“I’m leaning toward lower prices than they are now for the rest of this year,” Daniel Hynes, a Sydney-based analyst at Citigroup Inc., said by phone, without giving a forecast. “The marginal buyers, who have been pretty active in the market this year, have pulled away.”
Prices of fines with 62 percent iron content delivered to the port of Tianjin plunged 18 percent in the past six weeks after reaching $191.90 on Feb. 16, the highest since at least 2008, The Steel Index data show. The cash price hasn’t traded at less than $140 per ton since September 2010. Swaps for December are at $126.87 per ton, according to Singapore Exchange Ltd.
Industrial metals from copper to zinc and lead tumbled 17 percent in the past six weeks, according the London Metal Exchange index, on concern the European debt crisis would erode demand and after China tightened monetary policy to cool prices. The Standard & Poor’s GSCI gauge of 24 commodities retreated 12 percent in September, the most in almost three years.
Crude-steel production in China fell in September to 56.7 million tons, the lowest level in seven months, according to data from the National Bureau of Statistics and compiled by Bloomberg. Output reached a record 60.3 million tons in May.
Angang Steel Co., the largest Hong Kong-listed steelmaker, plans to halt a blast furnace for one-and-half months because of weakening demand, board secretary Fu Jihui said Oct. 18. The company said Oct. 14 that its net income in the first nine months of the year may have fallen 91 percent.
“In the next month, there are no triggers for me to say prices should rebound strongly,” Mark Pervan, Melbourne-based head of commodity research at ANZ, said by phone yesterday. “Prices could have another $10 a ton drop toward the mid- to low $140s, which would be the floor. Then you could see a 5 percent to 10 percent rebound at the end of December back up to $160 when seasonal factors kick in.”
Jiangsu Shagang Group Co., China’s biggest non-state-owned steelmaker, may delay ore purchases should steel output need to be cut, Vice President Shen Wenming said in an Oct. 17 interview. Shen described China’s steel market as “very bad.”
Steel prices in China have dropped to a 10-month low as the economy expanded 9.1 percent in the third quarter, the slowest pace in two years, demand from construction moderated. The price of Chinese rolled coil steel has fallen 10 percent since Sept. 2 and was trading at 4,357 yuan ($683) a ton yesterday.
Iron-ore inventories held at China’s ports reached a record 98.7 million tons in August, according to researcher Shanghai Steelhome Information. The holdings totaled 96.3 million tons on the week of Oct. 14.
Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated a meeting of European leaders in Frankfurt yesterday failed to resolve differences ahead of a summit this weekend. Europe’s leaders are looking to maximize the firepower of the 440 billion-euro ($605.5 billion) fund to contain the region’s debt crisis.
There’s no shortage of supply. Fortescue Metals Group Ltd. (FMG) saw shipments rise 21 percent in the three months to Sept. 30. Australia’s third-biggest producer is spending $8.4 billion to almost triple export capacity to 155 million tons a year.
BHP, the world’s largest mining company, said yesterday that iron-ore production was a record 39.57 million tons in the three months to Sept. 30. Rio, the second-largest miner, said Oct. 13 that output rose 5 percent to 49.8 million tons in the third quarter. Anglo American Plc said today that production increased 3 percent to 12.2 million tons.
Melbourne-based BHP is spending $7.4 billion on operations in Western Australia’s Pilbara region to increase output to 220 million tons by 2014. Rio may spend about $15 billion on expanding capacity in the region by about 50 percent by 2015.
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