Iron Sinks as Swelling Stockpiles Follow Ill-Fated China Frenzy

  • Holdings show supply pressure has increased, Sinosteel says
  • Benchmark ore price drops as miners’ stocks retreat in Sydney

Iron ore prices that soared amid China’s speculative frenzy last month just took another leg down, plummeting as rising port inventories in the top user spurred concern global supplies are once again topping demand.

Ore with 62 percent content sank 6.7 percent to $51.22 a dry metric ton on Monday, taking losses from the peak of more than $70 in April to 27 percent, according to Metal Bulletin Ltd. The drop, the most since March 9, was preceded by a slump in futures in Asia, with the SGX AsiaClear contract falling as much as 6.3 percent to $45.72 as futures in Dalian closed at the lowest since February.

Iron ore has been on a tumultuous ride this year as investors sought to gauge conflicting economic signals from Asia’s biggest economy against still-elevated port stockpiles. In China, traders piled into raw-material futures including iron ore in March and April, helping to boost prices, only to switch track when regulators clamped down. Inventories at ports have climbed above 100 million tons, offering fresh evidence of increased supplies from Australia and Brazil, and BHP forecast last week that there may be further increases.

“Stockpiles have once again broken the 100 million ton-level, indicating that supply pressure has increased significantly,” Fan Lu, an analyst at Sinosteel Futures Co., said in a note on Monday. “Mills’ margins have narrowed as steel output recovered,” suppressing demand for iron ore, she said.

The port inventories swelled 1.6 percent to 100.45 million tons last week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology Co. They’re up 7.9 percent this year. Miners’ shares retreated in Sydney, with BHP Billiton Ltd., Rio Tinto Group and Fortescue Metals Group Ltd. all lower on Monday.

As iron ore has sunk, other steel-making raw materials and products have also declined. Rebar futures in Shanghai fell 5.6 percent on Monday to close at 1,947 yuan ($297) a ton. Most-active prices had rallied to as much as 2,787 yuan about a month ago. The coking coal contract in Dalian plunged.

Goldman Sachs Group Inc. was among banks that said the prices seen during the speculative frenzy would not last as oversupply was likely to return. Last week, Vale SA’s Claudio Alves, global director of iron ore marketing and sales at the Rio de Janeiro-based mining company, said there was a need to prepare for tougher times ahead.

Australia and Brazil will export a combined 1.24 billion tons this year compared with 1.13 billion in 2015, according to Australia’s Department of Industry, Innovation & Science. As the country’s top miners boost output this year, smaller rivals are also raising supply. Atlas Iron Ltd., partly held by Glencore Plc, said Monday that it shipped record volumes in the first three months of this year.

“Australia and Brazil have kept shipments at relatively high levels,” said Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen. “Shipments will probably continue at high levels without many hiccups. Port inventories in China will continue to accumulate.”

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