Iron Drops to Lowest Since 2009 as APEC Curbs Dent Demand

Iron Ore
Trucks carry excavated iron ore from the open pit of an iron ore mine in Stary Oskol, Russia. Photographer: Andrey Rudakov/Bloomberg

Iron ore fell to the lowest level in more than five years as China ordered some mills to curb output to cut pollution before hosting a global summit, hurting demand in the biggest user just as rising supplies exacerbate a glut.

Ore with 62 percent content delivered to Qingdao lost 2 percent to $76.46 a dry metric ton, the lowest price since September 2009, according to data from Metal Bulletin Ltd. yesterday. The drop extended two weeks of losses at the end of October, deepening a bear market. Producers fell in Australia today, with Fortescue Metals Group Ltd. slumping 8.5 percent.

The raw material lost 43 percent this year, underperforming all 22 members of the Bloomberg Commodity Index, as producers including BHP Billiton Ltd. expanded supplies and spurred the surplus. Some mills in the largest buyer were ordered to suspend or reduce output before the summit of leaders at the Asia-Pacific Economic Cooperation forum in Beijing as the authorities sought to improve local air quality. A recovery in prices may take as long as 18 months, according to Anglo American Plc.

“Steel mills in north China should be working at a reduced rate due to the APEC meeting,” said Christian Lelong, an analyst at Goldman Sachs Group Inc. in Sydney. “That should be playing a role” in iron ore’s drop, he said by e-mail before the price was released.

Asia’s biggest economy will host the APEC gathering in the capital from tomorrow to Nov. 12, prompting authorities to order factory shutdowns to try to ensure clean air and blue skies during the event. The provinces of Hebei, the country’s biggest steel-producing region that surrounds the capital, and Shandong, the third-largest, will bear the brunt of the losses.

Air Pollution

“Measures to cut air pollution in Hebei have kept buying of feedstocks to a minimum,” Australia & New Zealand Banking Group Ltd. said in a daily report today. “Hebei steel mills and sintering plants have restricted production ahead of the Asia-Pacific Economic conference on the weekend in Beijing.”

Iron ore shipped from Australia’s Port Hedland, the world’s biggest bulk-export terminal, climbed to a record 37.5 million tons last month from 36.3 million in September and 28.9 million in October 2013, according to port authority data on Nov. 4. Exports to China were 31.7 million tons in October, near the record 32 million tons in August and 26 percent up on year. The Australian Institute of Marine and Power Engineers, which represents tugboat engineers at the port, will strike for four hours on Nov. 12, it said today.

The seaborne market needs to absorb a surplus of about 110 million tons next year, almost double the estimated 60 million tons in 2014, Goldman analysts Lelong and Amber Cai wrote in an Oct. 23 report. Prices may average $80 next year, they said.

Some analysts forecast a rally in the final weeks of this year. Iron ore may climb into the year-end as mills restock and some high-cost mines close, according to Sanford C Bernstein & Co. Prices will probably climb toward $100 by the end of the year, UBS AG said in an Oct. 15 report.

Port Holdings

Inventories held at ports in China shrank 0.7 percent to 106.3 million tons as of Oct. 31, contracting for a fifth week, according to data from Shanghai Steelhome Information Technology Co. While that’s the lowest level since March, it’s still 23 percent higher this year.

The global glut may keep prices near five-year lows for at least a further year, said Paulo Castellari, chief executive officer of Anglo American’s iron ore unit in Brazil. The raw material will probably trade at about $75 to $80 in the short term as the startup of new mines boosts supply, he said.

“It will take time for the market to react,” Castellari said in an interview on Nov. 3. “We will have another readjustment starting in 12 to 18 months because we know a lot of people won’t survive with prices between $70 to $90.” The miner began operations at its Minas-Rio project in Brazil, shipping a cargo of more than 80,000 tons to customers in China from the Acu port in Rio de Janeiro last month.

High-Cost Supply

HSBC Holdings Plc predicts Chinese production will decline 15 percent to 339 million tons this year from 2013, and drop to 236 million tons in 2015. The exit of high-cost supplies from the market will boost prices to an average of $85 a ton through 2015, from an average of $80 this quarter, the bank said.

China, which buys about 67 percent of seaborne ore, is importing record amounts at a time when growth is slowing. Imports rose 13 percent to 84.69 million tons in September, the highest level since January, customs data showed. Its economy is set to expand at the slowest pace since 1990, economists’ estimates compiled by Bloomberg show.

Rio Tinto Group lost 0.3 percent to A$60 at the close of trading in Sydney, extending this year’s loss to 12 percent. BHP’s stock is 11 percent lower in Sydney in 2014, while Fortescue declined 48 percent. The three companies are Australia’s biggest producers.

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