Iron ore has been dragged back into the $60s after getting hit by a barrage of bad news, with persistent concern about rising global supply, fresh questions about the outlook for demand in China, and a warning from Australia’s central bank that the top buyer may be nearing peak steel.
The benchmark spot price for ore delivered to Qingdao slumped 10% in the past four days, ending at $68.85 a dry metric ton on Tuesday, the lowest since July, according to Metal Bulletin. The sell-off in the commodity, which hit almost $80 in August, follows the first back-to-back weekly loss since June.
“As we get into the fourth quarter, we see demand in China pulling back, demand for steel pulling back,” Paul Butterworth, research manager for steel raw materials at CRU International, said in an interview in Singapore. “It’s quite likely the steel mills will say ‘well, we’ve got sufficient material on hand at the moment, so we can withdraw from the market for now’.”
Iron ore is coming under pressure as weakening data from China have undermined the outlook for the coming months at the same time as the top steelmaker plans output cuts over winter to ease pollution. On Tuesday, Australia’s central bank said prices will drop amid rising supply and prospects that steel output in China is nearing a peak on a per-head basis. The mainland is the world’s leading ore importer, taking cargoes from mining giants Rio Tinto Group, BHP Billiton, Fortescue Metals Group and Vale.
“Although steel demand would pull back, the steel sector is better structured today to manage that reduced demand, so profitability would fall from today’s levels but still be OK,” Butterworth said. But “raw materials could fall more significantly, particularly iron ore, where we’ve essentially still got new material coming into the market.” he said, flagging a drop into the low $60s.
Citigroup said in a report on Wednesday it expected iron ore fall to $53 next year, with the drop driven by rising supply and concern over a China slowdown. Australian exports may expand to 880 million tons next year from 841 million in 2017, while Brazil’s rise to 407 million from 385 million, it said.
Data this month showed Chinese industrial production and fixed-asset investment slowed in August, suggesting that efforts to rein in credit expansion and reduce excess capacity are hitting home. In a further sign of cooling on Monday, figures showed home prices rose in the fewest cities since January.
Prices are expected to fall “because of the ongoing expansion of global iron ore supply,” the Reserve Bank of Australia said in minutes of a policy meeting released on Tuesday. “Members also noted that Chinese steel production per capita was likely to be close to its peak and that growth in Chinese steel production would not add much to global demand for iron ore in the future.”
This year, Chinese mills have been going full tilt to take advantage of high steel prices and to crank out supply before winter curbs start. Crude steel output was a record last month, surpassing the previous peak in July. In the first eight months, supply rose 5.6 percent to 566.4 million tons.
“It’s amazing how resilient the Chinese steel industry has been,” Gavin Wendt, senior resource analyst at MineLife Pty, told Bloomberg Television on Wednesday. “Steel production still seems to be very, very strong, and that’s translating into a very robust iron ore price. I think we’re going to see a continuation of those prices for at least the balance of 2017.”
Iron ore futures in Asia were mixed on Wednesday. In Singapore, the SGX AsiaClear contract climbed as much as 1.6% to $67.61 a ton, rebounding from Tuesday’s 4.4% slide. In China, the most-active price on the Dalian Commodity Exchange was 1.1% lower.
© 2017 Bloomberg