Iron Ore Extends Drop From Two-Year High Amid China Crackdown

  • Benchmark prices slump 6.8%, biggest retreat since March
  • Iron ore futures fell by the daily limit on Dalian bourse

Iron ore dropped by the most since March, extending a retreat from a two-year high, as China’s exchanges clamped down on speculation by tightening trading rules. 

Ore with 62 percent content delivered to Qingdao fell 6.8 percent to $72.08 a dry ton on Wednesday, according to Metal Bulletin Ltd. Prices reached $80.83 on Monday, the highest since October 2014. The steel-making raw material has surged 65 percent this year, rebounding from three years of losses.

Iron ore and steel futures trimmed their second monthly advance as bourses in Dalian and Shanghai moved to deflate a boom driven partly by speculative trading. The Dalian Commodity Exchange raised margin requirements and the Shanghai Futures Exchange capped some positions. These measures have taken some speculative steam out of the market, according to Justin Smirk, a senior economist at Westpac Banking Corp.

“But the basics that are driving that speculation, the search for higher-yielding assets and the desire to hold U.S. dollars at a time for a weaker yuan, have not changed,” Smirk said by e-mail. “As such, we would expect to see significant volatility for some time. We are still some distance away from a full correction in prices back towards more fundamental levels.”

Futures dropped 3.6 percent on Wednesday to close at the limit of 556 yuan ($81) a ton on the Dalian Commodity Exchange, trimming the monthly advance to 11 percent. Prices climbed to 658.50 yuan on Nov. 24, the highest intraday level since August 2014.

While iron ore port inventories in China fell 0.3 percent last week, they’re still near the highest since September 2014 and are up 19 percent this year, according to Shanghai Steelhome Information Technology Co. Top producer Vale SA reiterated its output guidance of 360 million to 380 million tons for 2017 on Tuesday and expects to produce 400 million to 420 million tons the year after.

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