Iron ore capped a fifth straight weekly drop with prices trading near the lowest since 2009 on concern that slowing growth in China will hurt demand just as rising low-cost supplies spur a global surplus.
Ore with 62 percent content delivered to Qingdao lost 6.8 percent this week, dropping to $70.20 on Nov. 19, the lowest level since June 2009, data from Metal Bulletin Ltd. showed. The price retreated 0.9 percent to $70.31 a dry ton today.
Iron ore collapsed this year as surging low-cost output from Rio Tinto Group in Australia and Vale SA in Brazil spurred the glut. Data from Asia’s largest economy this week showed a drop in new-home prices and rising bad loans. The slump bears out a September forecast from Tom Albanese, former head of Rio Tinto, who said prices would remain weak for a sustained period as supply exceeded demand and China’s economy was slowing.
“The worst is yet to come,” Liang Ruian, a fund manager at Shanghai-based Jianfeng Asset Management Co., said in an interview today. “Not only will we see increased supply from Brazil and Australia, also there’s an element of collapsing demand which hasn’t been reflected in the price yet.”
Rio shares traded at 2,984 pence at 11:42 a.m. in London, 1.8 percent lower this week, while BHP Billiton Ltd. stock lost 0.9 percent this week. Fortescue Metals Group Ltd., Australia’s third-biggest shipper, retreated 54 percent this year in Sydney.
‘Not a Bottom’
New-home prices dropped in all but one city tracked by the government in October from the month before, according to the National Bureau of Statistics. Construction accounts for about 50 percent of China’s steel demand, Commonwealth Bank of Australia estimates, and the country is the largest ore buyer.
China cut benchmark interest rates for the first time since July 2012 as leaders step up support for the world’s second-largest economy. The one-year deposit rate was lowered by 0.25 percentage point to 2.75 percent, while the one-year lending rate was reduced by 0.4 percentage points to 5.6 percent, effective tomorrow, the People’s Bank of China said.
Iron ore at “$70 is not a bottom and I’m not even sure it can stand above $50 next year,” Liang said in Nanjing, China, where he’s attending an iron ore conference. “What people haven’t realized is the vanishing demand for commercial real estate here,” he said.
The market has hit bottom and prices may rebound, Standard Chartered Plc said in a Nov. 3 report. Prices will rise again over time, Rio Tinto Chief Executive Officer Sam Walsh told Sky News Television on Nov. 13. In the long term, the market won’t be oversupplied all the time, Vale SA said Nov. 7.
High-cost iron ore producers faced a “pain point” at about $80 a ton, Albanese, chief executive officer of London-based Vedanta Resources Plc, told Bloomberg on Sept. 29. While low-cost producers would still make good money, higher-cost mines faced closure over time, he said.
Cliffs Natural Resources Inc., the top U.S. producer, said this week it is considering closing a mine in Canada as an expansion isn’t viable. Kumba Iron Ore Ltd., which owns Africa’s biggest mine, said yesterday it’s reviewing its product portfolio and spending as prices are lower than expected.
“At these prices, we still have a very decent business, BHP Chief Executive Officer Andrew Mackenzie told reporters yesterday, adding that the time for massive expansions of iron ore are over. ‘‘We’ve been fairly clear that prices at about these levels were what we were expecting for the longer term.’’
— With assistance by Phoebe Sedgman, and Feiwen Rong