Iron Ore Seen Dropping as Price Near ’11 High Deters China

Iron ore will probably fall in the next two months as prices near the highest level since October 2011 discourage buyers in China, the world’s largest importer, according to Australia & New Zealand Banking Group Ltd. (ANZ)

Rates may decline $5 a ton to $10 a ton to the “high $140s,” Mark Pervan, head of commodity research at ANZ, said in an interview in Melbourne today. “At about $155, we think there’s slightly more downside risk.”

Iron ore has surged 81 percent from a three-year low in September to $157.20 a dry ton as China’s growth accelerated and port inventories dropped to the lowest level in more than three years. Mills in China, returning from Lunar New Year holidays, may not boost stockpiles as much as anticipated because of the cost of imports relative to domestic supply, Arctic Securities ASA and RS Platou Markets AS said yesterday.

“The key question will be: are the traders prepared to come in now and start restocking,” said Pervan. “Probably not, it’s probably a little too high. What it does mean is that they’ll be quite opportunistic to buy slight dips. You might see easing prices, but it won’t fall sharply.”

Ore with 62 percent content delivered to the Chinese port of Tianjin rose 1.4 percent yesterday to the highest level since Jan. 10, according to The Steel Index Ltd. Prices have increased 8.5 percent this year compared with a 2.7 percent gain in the London Metal Exchange index of six non-ferrous metals from copper to zinc where China is also the biggest consumer.

Volatile Range

Prices may trade in a $40 range between now and the end of March, according to Justin Smirk, senior economist at Westpac Banking Corp. (WBC) Sydney-based Smirk is the most accurate base- metals forecaster tracked by Bloomberg in the past three quarters and correctly predicted a slump last year.

“We’ve still got a target of $170 to be hit sometime before the end of the June quarter, but it could be quite a volatile range,” he said by phone today. “We have to see how the demand side kicks in, with restocking and rebuilding inventories. But we also need to see how the Chinese supply side is responding to these high prices.”

Inventories at Chinese ports dropped 5.2 percent this year to 66.9 million tons on Feb. 1, the lowest since January 2010, according to data from Beijing Antaike Information Development Co. Iron ore reached $158.50 a ton on Jan. 8, the highest level since October 2011, after rallying from $86.70 in September.

“It has been fairly momentum-based and what will happen now is there’ll be a pause with the New Year, a reality check,” ANZ’s Pervan said. “We’ve seen it trade at $140 a ton and stay there comfortably.”

Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin port moisture can account for 8 percent to 10 percent of the ore’s weight.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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