Iron Ore Declines Below $100 as Growth Slows in China

Iron Ore Drops Below $100 as Slowing Growth in China Cuts Demand
Shares in Rio de Janeiro-based Vale, the top iron-ore producer, dropped 3.2 percent to 34.19 reais yesterday, the lowest since Sept. 11, 2009. Photographer: Marcos Issa/Bloomberg

Iron ore fell below $100 for the first time since 2009 on concern that rising stockpiles and slowing growth in China, the biggest buyer, will cut demand for the steel ingredient and hurt profits for miners such as Vale SA.

Ore with 62 percent iron content delivered to the Chinese port of Tianjin slumped 4.9 percent to $99.60 a dry ton yesterday, the lowest since Dec. 7, 2009, according to a gauge compiled by The Steel Index Ltd. Prices are heading for a fifth monthly drop, taking this year’s loss to 28 percent.

China’s manufacturing may be contracting at a faster pace this month, a purchasing managers’ index by HSBC Holdings Plc and Markit Economics showed yesterday, signaling more monetary and fiscal stimulus is needed to secure a second-half rebound in economic growth. The world’s second-largest economy may slow for a seventh straight quarter after new loans in July and export growth missed estimates. Deutsche Bank AG, Bank of America Corp. and Morgan Stanley cut their growth forecasts for 2012.

“The market is just watching for China to base out,” said David Lennox, a resources analyst at Fat Prophets in Sydney. “If we can’t see the rate of decline in China’s growth stop and level out, there’s potential for more downside.”

People’s Bank of China Governor Zhou Xiaochuan said Aug. 22 that adjustments to rates and bank reserve requirements can’t be ruled out. Premier Wen Jiabao said last week that easing inflation allowed more room to adjust monetary policy.

Market Panic

The iron ore market is “moving quickly” toward $90 and panic is “becoming more tangible,” Deutsche Bank said yesterday. Many investors are waiting for the market to bottom before buying, it said. As prices decline, steel producers in China may switch to imports from lower-quality and more expensive domestic ore, which will support the market in the first quarter, the bank said.

China’s iron-ore imports fell 0.8 percent to 57.87 million tons last month, the lowest since April, according to customs. Steel-product exports were 4.32 million tons in July, 17 percent lower than a month earlier.

Shares in Rio de Janeiro-based Vale, the top iron-ore producer, dropped 3.2 percent to 34.19 reais yesterday, the lowest since Sept. 11, 2009. The company said last week that prices may rebound as soon as next month because of declining stockpiles and rising demand for construction in China.

BHP Billiton Ltd., the world’s largest mining company, this week reported a 35 percent drop in earnings to $15.4 billion in the year ended June 30 because of falling commodity prices. The stock dropped 1 percent to $A33.09 in Sydney today.

‘Seasonal Lift’

“There is no obvious failure in the industrial activity of Asia’s steel industry,” UBS AG analysts led by Tom Price said in an Aug. 20 report. “We should therefore expect a typical seasonal lift in ore prices in the fourth quarter, returning spot fines to levels above $125.”

Monthly crude steel production in China rose to a record

61.7 million tons in July, according to government data. Steel-product stockpiles at the nation’s 26 major markets are 19 percent higher this year, according to the China Iron & Steel Association. Iron ore inventories at ports have gained 3 percent since March, according to Shanghai Steelhome Information.

A preliminary reading of 47.8 for the purchasing managers’ index released by HSBC and Markit Economics compares with July’s final 49.3 figure. If confirmed, it would be the lowest level since November and the 10th month that the reading has been below 50, the longest run in the index’s eight-year history.

Gross domestic product increased 7.6 percent from a year earlier in the second quarter, the least since the first quarter of 2009, official figures show, while export growth collapsed in July and industrial output fell short of projections, reports this month showed. The economy may expand 8.1 percent this year, the slowest pace in four years, according to the median of a Bloomberg survey of 44 economists.

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.

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