For a clue about where iron ore prices are headed, watch port stockpiles in China.
Holdings will probably extend a rebound from a 19-month low as supply rises, according to Clarksons Platou Securities Inc., the world’s largest shipbroker, which says prices may slump to $35 a metric ton in the second half. Inventories, at 82.5 million tons last week, may climb to 95 million tons by September, said Australia & New Zealand Banking Group Ltd.
“With our view that Chinese steel production will end the year down year-on-year, it has to go somewhere and port stocks are the logical place,” Jeremy Sussman, a New York-based analyst at Clarksons, said by e-mail.
Iron ore’s been whipsawed this year, tumbling to the lowest level in at least six years earlier this month before rallying near to bull-market territory. The world’s biggest mining companies including BHP Billiton Ltd. and Vale SA raised output even as demand growth stalled in China, seeking to boost sales and cut costs. Further gains in low-cost production may cause prices to plunge into the $30s, according to Citigroup Inc.
“Stock levels may start to grow modestly in the months ahead as supply growth accelerates once again but, in a buyers’ market, this is likely to come at the expense of further price declines,” Goldman Sachs Group Inc. said in a report on Monday. The bank sees iron ore dropping for the next four quarters.
Ore with 62 percent content delivered to Qingdao rose 2.1 percent to $53.45 a dry ton on Tuesday, the highest level in more than three weeks, according to Metal Bulletin Ltd. Prices that sank to $44.59 on July 8, a record in data going back to May 2009, gained 19.9 percent since then. A bull market is typically defined as a gain of 20 percent from a closing low.
The port inventories contracted from a record 113.7 million tons in July 2014 to a low of 79.4 million tons in June after four quarterly declines, according to weekly data compiled by Shanghai Steelhome Information Technology Co. The 21 percent drop in the three months to June helped prices rally 16 percent.
The principal reason for the port-stockpile buildup is a slowdown in China’s steel demand, according to ANZ analyst Anurag Soin. Activity will remain weak for the next two months, driving port stockpiles higher, he said in an e-mail.
Steel output in China fell 1.3 percent in the first half after peaking last year, according to the China Iron & Steel Association. As apparent consumption dropped 4.7 percent in the first six months of 2015, more mills were looking for overseas sales, the group said in a statement this week.
Mills in China are focused on exporting their surplus, triggering a series of anti-dumping investigations, said ANZ’s Soin. That poses the risk this avenue for the disposal of the surplus may slow, said Soin.
Stock in Rio Tinto Group rose 1.4 percent to 2,440.5 pence in London, gaining for a second day as BHP advanced 1.1 percent. Earlier in Sydney, Fortescue Metals Group Ltd. rallied 7.4 percent to the highest close since July 2.