Iron Ore Sinks Toward $50 Amid China Concern as BHP, Rio Retreat

  • `There hasn't been much improvement,' China Merchants says
  • Fortescue's CEO Power forecasts that volatility will persist

Iron ore sank toward $50 a metric ton to post the first weekly loss in four amid a resurgent dollar and indications China’s economy has yet to rebound, offering early vindication to forecasters including Goldman Sachs Group Inc. who’d argued that recent gains were unlikely to persist.

Spot ore with 62 percent content in Qingdao fell 2.6 percent to $56.37 a dry ton on Thursday, dropping for a third day, according to Metal Bulletin Ltd. After gyrating this month, including the biggest one-day gain on record, prices remain 29 percent higher in 2016 following three years of losses on a global glut driven by rising low-cost supply and sinking steel demand in China. There’ll be no pricing on Friday.

Iron ore has been on a wild ride in March as investors sought to gauge conflicting economic signals from China against still-elevated port stockpiles and shifts in the U.S. currency. Prices posted the biggest ever one-day gain on March 7 in a rally to the highest since June, prompting banks including Goldman to say the gains would be temporary. Miner BHP Billiton Ltd. said after the spike that it was probably more bearish about iron ore than the price of any other commodity in its portfolio.

Little Improvement

“There hasn’t been much improvement in China’s economy and steel mills aren’t keen to purchase iron ore, especially after the price surge,” Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen, said before the Metal Bulletin price. “The dollar also surged overnight, spurring a sell-off in commodities.”

Losses in the benchmark were preceded by a slump in futures in Asia. The SGX AsiaClear contract for May settlement sank as much as 5.8 percent to $49.90 in Singapore, while on China’s Dalian Commodity Exchange futures fell 5.1 percent. Miners’ shares retreated in Sydney as BHP lost 3.4 percent, Rio Tinto Group dropped 3.6 percent and Fortescue Metals Group Ltd. fell 2.3 percent. The three are the country’s largest exporters.

In China, the earliest private indicators for March show that monetary and fiscal stimulus have yet to spur a rebound. A purchasing manager’s index focused on small businesses, a gauge of corporate confidence and a new reading of the economy derived from satellite imagery all remain at levels signaling deterioration, though the pace of declines moderated. Against that, China’s home prices climbed in more cities last month. 

Li’s View

Premier Li Keqiang said in a keynote speech at the Boao forum on Thursday that China’s economy saw positive signs of change this year and the government was confident of maintaining growth above 6.5 percent over the next five years. China will promote steady development of the property market, avoiding major fluctuations, he said.

“My sense is that there’s more confidence and more optimism” in China’s economy than a year ago, Fortescue Chief Executive Officer Nev Power said in a Bloomberg Television interview at the forum. In iron ore, “we are going to continue to see volatility though, because it is so heavily traded in the futures market that we will continue to see that driven by any positive or negative newsflow.”

The dollar has surged this week, hurting commodities priced in the U.S. currency, as several Federal Reserve policy makers signaled their willingness to raise interest rates further this year, possibly as soon as next month. So far this week, the Bloomberg Dollar Spot Index is 1.2 percent higher as raw materials lost 2.3 percent.

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