After Speculative Frenzy, Iron Ore Slides as Stockpiles Rise

  • Steel demand typically slows in May, Everbright Futures says
  • Futures contracts in Asia sag before Metal Bulleton price

Iron ore tumbled as rising port inventories in China, the world’s biggest buyer, hurt prices that have been propelled higher by an improved economic outlook and heightened investor speculation.

Ore with 62 percent content delivered to Qingdao declined 4.3 percent to $63.41 a dry metric ton on Tuesday, paring gains this year to 46 percent, according to Metal Bulletin Ltd. The port inventories rose 1.2 percent to 98.5 million tons last week, the highest in more than a year, according to Shanghai Steelhome Information Technology Co.

Iron ore’s advance in the opening months of 2016 has wrong-footed many forecasters after China added stimulus, presiding over an unexpected rebound in the property sector. The advance helped to spur the increase in speculative trading, prompting a clampdown by regulators to rein in excesses. Goldman Sachs Group Inc. maintains that iron ore will sink back to $35 as oversupply returns, with more low-cost production set to start in 2016.

The month of “May marks the period where steel demand typically starts to slow after a busy season,” Xia Junyan, an analyst at Everbright Futures Co., wrote in a note on Tuesday. “Port stockpiles of iron ore have remained near 100 million tons, indicating that supply is relatively abundant.”

Futures Contracts

Most-active SGX AsiaClear futures lost as much as 6.9 percent to $57.83 a ton in Singapore on Tuesday before the once-a-day Metal Bulletin price was released, while the contract on the Dalian Commodity Exchange sank 4.2 percent. In China, steel rebar, a benchmark product, and coking coal, used in furnaces, also fell.

Speculators who traded $261 billion in Chinese commodities in a single day last month are retreating after regulators stepped up control and oversight of markets, boosting margins and fees and cutting down hours for some contracts. The value of futures traded across China’s three biggest commodity exchanges has shrunk more than 40 percent since investors spent 1.7 trillion yuan on April 21 on everything from rebar to coal.

Speculators had piled in after signs that steel demand was picking up, and a manufacturing gauge for China’s mills at the weekend signaled the first expansion in two years. The steel purchasing manager’s index rose to 57.3 in April from 49.7 a month earlier, according to official data on Sunday. Readings above 50 indicate expansion.

Steel production in China, which accounts for about half global supply, gained to a record in March, as mills ramped up supply and margins expanded. Over 60 blast furnaces nationwide were brought back into production during the first quarter, according to China Metallurgical News, which is affiliated with the China Iron & Steel Association.

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