Iron ore will probably extend declines after falling back into a bear market on Monday as low-cost supplies from Australia and Brazil are set to expand further this half while demand stumbles in China.
Prices may drop toward $40 a metric ton, according to Clarksons Platou Securities Inc. A deepening slowdown in China’s steel industry and higher iron ore exports from the largest miners are weighing on prices, said Sanford C. Bernstein & Co.
Iron ore’s return to a bear market highlights that the same factors of surging supply and stalling demand growth, which dragged prices to a decade-low early April, remain at the forefront. Recent losses followed figures showing inventories in China rebounded, while exports in June from Australia’s Port Hedland were at a record. The Minerals Council of Australia on Tuesday defended local miners’ policy of adding output, saying cuts would be a failed strategy that would aid competitors.
“Momentum is clearly negative and that is going to be hard to reverse in the immediate short term,” Paul Gait, an analyst at Bernstein in London, said in an e-mailed response to questions. “The revealed preference of the miners is for volume over value, for tons ahead of price.”
Ore with 62 percent content delivered to Qingdao sank 5.4 percent to $52.28 a dry ton on Monday, according to Metal Bulletin Ltd. Prices slumped more than 20 percent from a high set on June 11, meeting the common definition of a bear market. They’d rebounded from the decade-low of $47.08 on April 2 after shipments missed expectations and port stockpiles fell.
“In recent weeks, we have seen trade pick up,” said Jeremy Sussman, a mining analyst at Clarksons in New York. “If this continues, we think iron ore can continue going lower,” he said, reiterating a view that the price may slump to $40.
Futures on the Dalian Commodity Exchange plunged 4.7 percent to close at 376 yuan ($60.56) a ton, the lowest since April 10. Swaps for July settlement on the Singapore Exchange Ltd. dropped to $50.30 a ton on Monday, with contracts for later months trading below $50.
Even as prices drop, AustraliaS’s biggest producers will generate more than A$615 billion ($460 billion) in revenue in the 10 years to 2024, surpassing the previous decade’s total, the minerals council said in a policy paper. Rio Tinto Group and BHP Billiton Ltd., the country’s biggest iron ore suppliers, are members of the group that represents the industry.
The slump in prices validated forecasts from banks including Goldman Sachs Group Inc. and UBS Group AG for renewed declines, with Citigroup Inc. predicting prices will drop to less than $40 a ton in the final three months as supplies swell.
Iron ore may drop to average $50 this quarter as supply expands led by mines in Australia, and there are further cuts to steel output, according to Morgan Stanley. The bank is more bullish over the longer term as some high-cost mines may close and the top producers become less competitive in their behavior, analyst Tom Price in London said in a note received on Tuesday.