Iron Ore’s Bear Market Deepens on Demand Concern in China
10 March 2014, by Whitney McFerron (Bloomberg)
Iron ore extended its decline into a bear market, slumping by the most since August 2009, amid concern that demand in China is slowing just as rising output signals a global glut.
Ore with 62% content delivered to Tianjin fell 8.3% to $104.70 a dry ton, the lowest since October 2012 and the biggest drop in more than four years, according to data from The Steel Index Ltd. yesterday.
The benchmark price lost 27% since Aug. 14, when it reached a five-month high of $142.80. The raw material dropped into a bear market on March 7.
BHP Billiton Ltd. (BHP) and Rio Tinto Group predict lower prices this year after producers in Australia and Brazil spent billions of dollars to expand output.
Banks from Citigroup Inc. to Standard Chartered Plc predict a global surplus, and Goldman Sachs Group Inc. listed iron ore among its least-preferred commodities for 2014.
A surge in stockpiles at China’s ports spurred speculation the inventory overhang threatens imports.
“The fall in iron ore prices may reflect the beginning of a buyers’ strike in China’s iron ore markets, much like we saw in September 2012 when prices tumbled below $90, as surplus concerns mount,” Lachlan Shaw, an analyst at Commonwealth Bank of Australia, wrote in a report today.
The market is “biased to oversupply in the very near term, and may prompt a further drop in the iron ore price.”
Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest producer, lost 0.3% to A$4.905 at 1:21 p.m. in Sydney after tumbling 9.4% yesterday.
Rio Tinto added 0.9% to A$61.745, rebounding from a 5.8% loss, while BHP was 0.2% higher at A$36.235 after a 4.1% loss.
While there may be further pressure on shares until iron ore bottoms out, investors should buy producers on the view that the raw material will average more than $110 a ton in 2014, UBS AG analysts led by Glyn Lawcock wrote in note dated yesterday.
China’s imports were 61.24 million metric tons in February, down from 86.83 million tons in January, according to customs data released on March 8.
Stockpiles at ports stand at 105 million tons, 21% higher this year, according to data from Shanghai Steelhome Information Technology Co.
“Anecdotal evidence suggests that increases in stockpiles at the ports, especially iron ore, are for trade-finance deals instead of production,” HSBC Holdings Plc analysts Ma Xiaoping and Qu Hongbin said in a report.
BHP Chief Executive Officer Andrew Mackenzie said on Feb. 18 that supply growth may drive prices lower, joining Rio Chief Executive Officer Sam Walsh, who said in December that new capacity will lower prices this year.
The global seaborne surplus may climb to 67 million tons in 2014 from 2 million tons last year, Citigroup said March 3. Standard Chartered forecasts a glut of 136 million tons from a deficit in 2013.
Prices may drop to $105 this year and $80 in 2015, Goldman analyst Christian Lelong said in a Jan. 20 report.
Premier Li Keqiang announced an economic growth target of 7.5 percent for this year at last week’s National People’s Congress in Beijing, a pace unchanged from 2013.
China accounted for about 67% of global import demand in 2013, according to Morgan Stanley.