Iron Ore Rally Seen Overdone by ANZ as Steel Demand Weakens

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The recent rally in iron ore is unlikely to be sustained, according to Australia & New Zealand Banking Group Ltd., which highlighted the risk of losses after prices capped the longest run of weekly gains in a year.

While shipments to China were disrupted last week after explosions at Tianjin’s port, weak steel demand suggests price gains are overdone, the bank said in a report on Monday. Ore with 62 percent delivered to Qingdao rose 0.6 percent to $56.74 a dry metric ton last week to post a fifth straight climb, Metal Bulletin Ltd. data showed. The price hit $57.02 on Thursday, the highest since July 1, after the blasts late on Wednesday.

Iron ore rebounded over the past five weeks from the lowest since at least 2009 as rebar prices advanced in China, and some mills were expected to boost output before state-ordered clean-air curbs for a parade in Beijing. Weakening demand for steel in the country this year is spurring mills to boost exports to a record, heightening trade tensions.

“A slowdown in Chinese domestic steel demand has triggered a strong wave of steel exports,” ANZ said. “Exports are up 26 percent year-to-date, despite the removal of a supportive 10 percent export rebate at the start of the year.”

ANZ backed bets on losses in iron ore in a note on Aug. 11, recommending that investors sell October swaps with a one-month target of $47 a ton. Iron ore supplies are set to expand, while steel demand in China slows, the bank said.

The explosions in Tianjin, which killed more than 100, disrupted iron ore cargoes before normal services resumed. BHP Billiton Ltd. said on Friday that the iron ore berths in Tianjin were operating as normal, while Fortescue Metals Group Ltd. said there was no impact on shipments. Brazil’s Vale SA said no damage was reported to the Tianjin berths.

Iron ore futures for September lost as much as 1.8 percent to $52.06 a ton on Singapore Exchange Ltd., and traded at $52.50 at 11:53 a.m. local time. On the Dalian Commodity Exchange, most-active prices declined as much as 1.3 percent.

— With assistance by Jake Lloyd-Smith

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