Iron ore is headed for the biggest monthly advance in almost two years as port stockpiles in China are poised to post a record monthly contraction.
Ore with 62 percent content delivered to Qingdao, which bottomed at a decade-low $47.08 a dry metric ton on April 2, was at $62.33 on Thursday, according to Metal Bulletin Ltd. Prices are 11 percent higher in May and headed for the biggest increase since July 2013 after rallying 9.4 percent in April. The back-to-back monthly rise pared losses this year to 13 percent.
Iron ore swung from a bear to bull market this year as rising low-cost output from the top producers including Rio Tinto Group spurred the closure of smaller mines, including in China. Lower output in the biggest user is boosting demand for seaborne ore, according to Australia & New Zealand Banking Group Ltd. Goldman Sachs Group Inc. said recent gains won’t last amid a glut, noting that the port stockpiles fell after shipments from Australia and Brazil missed expectations in April.
“The drop below $50 a ton was unsustainable,” said Gerard Burg, senior Asia economist at National Australia Bank Ltd. “Too many producers globally were unprofitable at this level, leading to a cutback in supply, most notably in China.”
Iron ore’s surge this month compares with the 3.3 percent drop in the Bloomberg Commodity Index. While the gauge doesn’t include iron ore among the raw materials that it tracks, it’s outperformed all of the members.
Inventories at Chinese ports fell 2.2 percent to 86.7 million tons last week, the lowest level since December 2013, according to Shanghai Steelhome Information Technology Co. So far this month, the stockpiles contracted 11 percent, the most on record in data that go back to 2010.
Since bottoming in April, iron ore rallied 32 percent. The price should have a strong floor at about $60 after a period of volatility, Pacific Investment Management Co. said in April.
Analysts from Goldman Sachs to Citigroup Inc. said that there will probably be renewed declines as the world’s biggest producers add further supply and demand growth stalls.
The rally offers an opportunity to bet against the commodity, Goldman Sachs said on May 11. The gains came as port stockpiles in China fell after lower-than-expected exports in April, Goldman said Wednesday, describing spot supply as tight.
Exports from Australia’s Port Hedland to China fell 3.6 percent to 30.1 million tons in April from March, the lowest level since November. Total shipments fell 3.4 percent to 35.4 million tons last month.
“Supply has had a little bit of a difficulty over the past month and a half,” said Ivan Szpakowski, a commodities strategist at Citigroup. “We think miners were actually holding back a little bit of tonnage when prices were low.”
Citigroup cut its long-run price outlook 32 percent to $55 as demand will drop over the 2020s, according to a report Wednesday. Prices will remain under pressure as expansions of low-cost supply offset cuts from smaller miners, Bill Marmion, Western Australia’s mines minister, told Bloomberg.
China’s output may drop to 237 million tons this year after shrinking 19 percent last year to 292 million tons, UBS Group AG estimates. Prices will average $50 in 2015, UBS said this month.