Iron ore fell to the lowest since 2012 on concern that a probe into commodity financing at China’s Qingdao port may hurt demand for the raw material amid a global seaborne glut.
Ore with 62 percent iron content delivered to the port of Tianjin declined 0.7 percent to $90.90 a dry ton today, the lowest level since September 2012, according to The Steel Index Ltd. Prices lost 3.8 percent this week and retreated in eight of the past nine weeks.
Chinese and foreign banks are examining loans linked to metals at Qingdao amid concern that risks are more widespread in the country, where traders use commodities from copper to iron ore and rubber to get funding. Iron ore slumped 32 percent this year as mining companies from BHP Billiton Ltd. (BHP) to Rio Tinto Group (RIO) expanded output, deepening a global surplus as growth slowed in China, the world’s largest buyer.
“Banks are more vigilant about iron ore financing,” Marcus Garvey, a London-based commodity analyst at Credit Suisse Group AG, said by e-mail. “Credit is clearly tight for a lot of people in the sector.”
Banks including Standard Chartered Plc, Citigroup Inc. and Standard Bank Group are reviewing potential fallout from Qingdao, where officials are checking whether metal stockpiles fell short of collateral obligations.
Investigators are trying to determine if single batches of copper and aluminum were used to secure multiple loans, bankers assisting with the probe told Bloomberg News this week. This will spur foreign banks to lend less money against commodity inventories in China, Goldman Sachs Group Inc. said June 9.
“If the probe spills over to iron ore inventory, traders will have problems getting financing,” Wu Zhili, a steel analyst at Shenhua Futures Co. in Shenzhen, said by phone. “They might start to dump ore, resulting in a market selloff.”
China’s iron ore inventory at ports fell 0.3 percent to 106.5 million tons in the week to June 6 from a record 106.86 million tons a week earlier, data from Beijing Antaike Information Development Co. shows. As much as 40 percent of inventory at ports may be tied up in financing, according to Daiwa Securities Group Inc.
Morgan Stanley reduced its price estimate for this year to $105 from $118 forecast in May as the seaborne surplus grew faster than expected and cost support at Chinese miners fell, analysts Joel Crane and Rachel Zhang wrote in a report yesterday. That’s lower than Goldman Sachs, which predicts an average of $109, and below UBS AG’s estimate of $111.
“We are now well into a process of price adjustment,” said Ric Spooner, chief market analyst at CMC Markets in Sydney, forecasting an average of $100 this year. “The supply surplus appears to be biting much faster than many assumed now that it’s finally emerged.”
Futures on the Singapore Exchange traded below $90 for the first time since the contract started in April last year. The contract for July settlement lost as much as 1 percent at $89.70 today.
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