Iron Ore Drops to Lowest Since July as Goldman Sees Correction

Iron ore fell to the lowest in six months, dropping below $130 a dry ton for the first time since August, on expectations demand in China will slow before the country’s Lunar New Year holiday.

Ore with 62 percent iron content delivered to the Chinese port of Tianjin declined 1.1 percent to $129.50 a ton yesterday, the lowest since July 16, according to data from The Steel Index Ltd. That’s the first time the raw material traded below $130 a ton since Aug. 1, the data show.

Iron ore climbed 15 percent in the second half of 2013 as China, the world’s biggest buyer, boosted stockpiles to the highest in more than a year. Prices may correct from as soon as late this quarter as production increases, according to Goldman Sachs Group Inc. Output at Chinese mills typically declines in the first quarter on cold weather and the new year holiday, Credit Suisse Group AG says. The holiday runs from Jan. 31 to Feb. 6 this year.

Prices have dropped “on a marked slowdown in restocking from steel mills ahead of the Chinese New Year and weaker downstream steel prices,” Australia & New Zealand Banking Group Ltd. analysts led by Mark Pervan wrote in a note today. “With mills reporting ample inventory cover, nearing 45 days, we expect buying to remain light and some further downside in spot prices.”

A global seaborne surplus will emerge in the second quarter as supply outweighs demand, Goldman said Jan. 12, predicting prices to average $108 a ton this year. Credit Suisse said Jan. 6 that it expects a “significant correction” as miners including Rio Tinto Group (RIO) and Fortescue Metals Group Ltd. push the global surplus to 42 million tons this year.

Iron ore inventories at Chinese ports were 83.57 million tons on Jan. 10, the highest since November 2012, according to Beijing Antaike Information Development Co. Steel stockpiles gained for a fourth straight week to 5.52 million tons as of Jan. 10, according to data by Shanghai Steelhome Information Technology Co.

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