Iron Ore May Resume Fall as Demand Declines, Ord’s Arden Says

Iron ore, which has surged 24 percent this month, may resume a decline as steelmakers in China, the world’s biggest consumer, restrict output due to falling demand, according to Peter Arden, an analyst at Ord Minnett Ltd.

After losing 31 percent in October, the biggest loss since at least December 2008, spot ore surged to $147.40 per metric ton yesterday, The Steel Index Ltd. data show. A seasonal upturn won’t be enough to offset weakness in demand, said Arden, a former geologist who’s followed prices for the past 15 years.

“Iron-ore prices have risen dramatically since the belting they got last month but they may get another belting soon,” Arden said in a phone interview from Melbourne today. “Prices have peaked. There’s usually a rise in buying from Chinese steelmakers at this time of year, but I see more grey clouds.”

China usually begins restocking of bulk commodities in November before ramping up production in the New Year, UBS AG said in a report today. The nation’s credit-tightening policy has curbed demand and prompted local mills including Baoshan Iron & Steel Co. to cut prices, while the debt crisis in Europe has raised concerns that economic growth may slow in emerging countries, Tokyo Steel Manufacturing Co. said yesterday.

“Short-term seasonal factors have led to this month’s rise in ore prices, as the northern-hemisphere steel mills stock up ahead of winter,” said Peter Strachan, who heads Perth-based independent advisory firm StockAnalysis. “Some steel mills are starting to throttle back in response to lower demand and prices for steel generally. Prices will weaken from now into 2012.”

‘Rock-Bottom’

Iron-ore prices have stabilized and are recovering from “rock-bottom” levels earlier this year, Vale SA (VALE5), the world’s largest producer of the steelmaking ore, said on Nov. 8.

China, the largest steelmaker, cut imports of iron ore to an eight-month low of 49.9 million tons in October, 18 percent less than the 60.6 million tons in September. The country’s economy 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. Angang Steel Co. and smaller producers in Hebei province shut plants for maintenance.

About $3.3 trillion has been wiped off global equity market values this month amid concern Europe’s crisis and a U.S. political impasse over its debt will dent global growth. Asian policy makers have shifted focus to shielding growth, from stemming inflation, as the risk of global recession increases.

“This month’s rebound seems a bit overdone, so the price will settle lower,” Arden said. “The world’s not in a great shape and I can’t see what’s going to drive higher prices. China is not immune to problems in Europe and the outside world, and it has some problems of its own emerging.”

To contact the reporter on this story: Jason Scott in Melbourne at jscott14@bloomberg.net

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