Iron Ore Sinks Back Into $50s as China Concerns Escalate

Updated on
  • ‘We’re going to have fewer steel mills going flat out’: Lennox
  • Holdings at mainland ports expand again as winter approaches

Iron ore futures have been dragged back into the $50s, raising the possibility that the commodity may slump below this year’s low on concern that steel-output cuts in China will hurt demand over winter just as seaborne supplies from the world’s top miners expand.

In Singapore, the most-active SGX AsiaClear contract retreated 3.3 percent to $58.48 a metric ton at 4:46 p.m, the lowest price since June. The contract bottomed in the same month at $52.50. On China’s Dalian Commodity Exchange, prices sagged 0.6 percent as steel tumbled.

Iron ore sank into a bear market last month as investors weighed the impact on demand of steel production cuts in China to fight pollution, while miners including Brazil’s Vale SA go on boosting output. The measures in the top steel producer could drag prices into the $50 to $60 range, before they snap back in 2018, Deutsche Bank AG has warned. Among signs of robust supplies, stockpiles of ore amassed at China’s ports rose again last week.

‘Temporary Lull’

“We’re going to have fewer steel mills going flat out during this winter, so there will be a greater seasonality in the market this year,” said David Lennox, a resource analyst at Fat Prophets. “This is a temporary lull. November and December should be quiet but at some stage there will be restocking.”

Benchmark spot ore with 62 percent iron content in Qingdao was at $61.01 a dry ton on Tuesday, the lowest since June, according to Metal Bulletin Ltd. Prices have lost 22 percent this year, and bottomed in June at $53.36.

Holdings of ore at mainland ports rose again last week, expanding 0.5 percent to 133.9 million tons, according to figures from Shanghai Steelhome E-Commerce Co. The increase builds on the prior week’s 1.8 percent gain, which snapped a run of nine straight declines.

Australian Outlook

The potential for weaker prices was flagged by Australia, the largest shipper and home to miners including Rio Tinto Group, BHP Billiton Ltd. and Fortescue Metals Group Ltd. Iron ore will average $49.50 a ton in 2018, the Department of Industry, Innovation and Science said in a quarterly report last Friday.

There are plenty of indications of rising production. There’s “ample supply” in global markets, National Australia Bank Ltd. said in a note last week. Among projects that are in the process of ramping up is Vale’s giant S11D, which will help to lower the company’s cost of production while boosting volumes.

— With assistance by Ranjeetha Pakiam, and Martin Ritchie

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