Iron Posts Biggest Weekly Loss Since 2011 as Speculation Ebbs

  • Prices are weakening on clampdown, port holdings, BMI says
  • Goldman warns on mine outlook as price forecasts increased

Iron ore posted the biggest weekly loss in four years after China quelled speculation in raw-materials trading and concern increased about whether a recent improvement in demand in the top user will be sustained.

Ore with 62 percent content delivered to Qingdao fell 3.3 percent to $58.29 a dry metric ton on Friday, taking the drop this week to 12 percent, according to Metal Bulletin Ltd. That’s the most since October 2011.

Iron ore is retreating from a 15-month high in April as regulatory authorities and exchanges in China team up to quell a record spike in speculation in commodities, including iron ore and steel. While Goldman Sachs Group Inc. moved to raise its 2016 iron ore forecasts this week, it’s also saying price gains probably won’t endure as further growth in steel consumption is unlikely and mine supplies are still rising. Holdings at China’s ports have now expanded to near 100 million tons.

“Elevated stockpiles tell us that the mills aren’t that quick in replenishing their stocks, which can signal a decrease in demand,” Mitchell Hugers, a commodities strategist at BMI Research, said before the price data were published. Prices are weakening on the rising inventories, Chinese exchanges curbing speculation and a decline in steel prices, he said.

Goldman’s View

This year’s improvement in steel demand surprised Chinese mills as the industry had expected further weakness in 2016 after a significant contraction in sales last year, according to Goldman. The New York-based bank now sees iron ore at $40 a ton in the final quarter, up from its previous estimate of $35, according to a report.

Inventories held at ports across China increased 1.4 percent to 99.85 million tons this week to the highest level since March 2015, according to data from Shanghai Steelhome Information Technology Co. on Friday. After rising for three weeks, the holdings have expanded 7.3 percent this year.

“Margins for the steel makers have been strong, but many are still not convinced this will be maintained,” said Jessica Fung, an analyst at BMO Capital Markets in Toronto. “If they have restocked their raw materials to a satisfactory level, they are probably not buying spot material now.”

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