Iron Ore Drops Below $85 for First Time Since ’09 as China Slows

Iron ore declined below $85 a metric ton for the first time in five years as China’s economy, the world’s biggest buyer, showed signs of losing momentum amid an expanding global glut.

Ore with 62 percent content at the Chinese port of Qingdao dropped 1.7 percent to $83.80 a dry ton today, sliding to the lowest level since September 2009, according to data compiled by Metal Bulletin Ltd. The raw material decreased for a fifth week in the longest run of losses since May.

Prices tumbled 38 percent this year as Vale SA, Rio Tinto Group and BHP Billiton Ltd. increased production, pushing the market into a glut. Data this week showed manufacturing in China, which buys 67 percent of seaborne ore, slowed in August, joining weaker credit, production and investment data in suggesting that economic growth is faltering. New-home prices fell in July in almost all cities that the government tracks, according to the National Bureau of Statistics.

“China’s steel production is growing at a slower pace this year due to the slowdown in the property sector,” Helen Lau, an analyst at UOB Kay Hian Ltd. in Hong Kong, said by phone. “This causes demand for iron ore to be sluggish.”

The world’s biggest producers are targeting record shipments, betting that the increase will offset plunging prices and force less competitive mines to close. About a quarter of global supply is break-even or loss-making at prices now and production cuts are happening, according to UBS AG.

Market Share

“There is a market-share battle and the high-cost guys do need to make way for low-cost production,” Daniel Morgan, a Sydney-based UBS analyst, said today in a Bloomberg Television interview. “Prices at the moment are falling and risk is to the downside in the very short term. That’s one to two months.”

Rio Tinto, the top supplier after Vale, plans to boost output to more than 330 million tons in 2015 after an 11 percent advance to 295 million tons this year, the company says. Vale will raise production by 8.4 percent to 348 million tons in 2015, it says. BHP sees an 8.9 percent increase from its Western Australian mines in the year from July 1, while Fortescue Metals Group Ltd. may boost shipments by 25 percent.

Slowing steel demand in China and new production capacity in Australia and Brazil have led to a global surplus that Goldman Sachs Group Inc. forecasts will more than double to 175 million tons in 2015 from 72 million tons this year.

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