Iron ore retreated to the lowest level in at least six years as a rout in China’s stock markets threatened to hurt demand in the largest buyer just as the biggest producers plan to raise output.
Ore with 62 percent content delivered to Qingdao sank 10 percent to $44.59 a dry metric ton on Wednesday, according to Metal Bulletin Ltd. That’s the lowest price on record dating back to May 2009, the data show. The raw material was until the past several years traded predominantly through annual benchmark prices. Compared with those benchmarks, this would be the lowest since 2005, data compiled by Clarkson Plc show.
Commodities from metals to crude slumped earlier this week on concern demand is stalling in China, where authorities tried to stem equity losses, and investors confronted the prospect Greece may quit the euro zone. Iron ore’s decline validates bearish forecasts from Goldman Sachs Group Inc. to Citigroup Inc., which said that gains in the second quarter wouldn’t last as low-cost output would rise, spurring a glut.
“The slump in equities reflects a lack of confidence in China’s economy, which damps the demand outlook for industrial commodities,” Wu Zhili, an analyst at Shenhua Futures Co. in Shenzhen, said on Wednesday before the price data. “I don’t think that will stop the major producers from raising output.”
Rio Tinto Group lost 0.3 percent to close at 2,484.50 pence in London, the lowest settlement since September 2009. BHP Billiton Ltd. declined 0.1 percent to close at a six-year low.
Iron ore’s 10-day drop was spurred by figures showing holdings at ports in China rebounded last week while exports in June from Australia’s Port Hedland climbed to an all-time high. The slump deepened as China’s stock rout worsened, with the Shanghai Composite Index falling to a three-month low Wednesday.
The “selloff is far and wide,” Liu Xu, a trader at asset-management company Guoyun Investment Co. in Beijing, said on Wednesday. “Iron ore and steel, which are traditionally considered to be closely associated with the Chinese economy, bore the brunt of the selling.”
The Bloomberg Commodities Index of 22 raw materials added 0.2 percent, after touching a three-month low on Tuesday.
The Minerals Council of Australia, which counts BHP and Rio as members, this week defended local miners’ policy of adding output even as prices drop. Australia’s top producers will generate more than A$615 billion ($456 billion) in revenue in the 10 years to 2024, surpassing the previous decade, the council said in a policy paper.
“We see increased freight activity at major iron ore terminals and a halt of port inventory drops,” Goldman Sachs said in a report received on Wednesday that forecast prices at $44 next year and $40 in 2017. Low prices are required to trigger closures in an oversupplied environment, it said.