Iron ore prices are on the slide again, sinking back toward $50 a metric ton after six days of losses as expanding low-cost supplies and sputtering demand in China spur concern a global glut will persist into 2016.
Ore with 62 percent content delivered to Qingdao lost 1.1 percent to $51.03 a dry ton on Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material -- which bottomed at $44.59 on July 8, a record in daily price data dating back to May 2009 -- is headed for the first monthly loss since July. Miners’ shares declined in Australia, led by Fortescue Metals Group Ltd.
The renewed decline shows that the global market has yet to reach a balance as the biggest miners boost cheap output while steel consumption contracts in China. Rio Tinto Group and Vale SA reported increases in quarterly supply this month as data from China showed slowing economic growth and a further drop in steel production. With many mills in China losing money as steel prices languish, Shanghai Baosteel Group Corp. Chairman Xu Lejiang has forecast nationwide output may eventually slump 20 percent.
Steel Cuts
“Supplies from the majors have increased markedly,” Xu Huimin, an analyst at Huatai Great Wall Futures Co. in Shanghai, said by phone. “Mills’ losses are mounting and they’ll be forced to reduce output sooner or later. The magnitude of steel cuts will determine the size of the iron ore glut.”
Benchmark prices have held between $50 and $60 since July 10, supported by low port stockpiles in China. Westpac Banking Corp. said this month that the $10 range would probably give way before year-end. Goldman Sachs Group Inc. has predicted further losses, while Citigroup Inc. said prices will drop below $40 in the first half of 2016.
Crude-steel output in China, which accounts for half of global production, shrank 3 percent to 66.12 million tons in September on-year as local demand fell. Shanghai Baosteel’s Xu told reporters in Shanghai last week that the contraction in China’s production would eventually match the experience seen in the U.S., Europe and elsewhere.
China Rates
Iron ore’s recent drop comes even as policy makers in China introduced a measures to stabilize growth. The central bank announced further cuts to the benchmark lending rate and banks’ reserve requirements on Friday. Leaders gather this week to map out a five-year plan for the world’s No. 2 economy.
The biggest producers are still adding output, seeking to lower costs per ton, expand sales and take market share from less efficient rivals. BHP Billiton Ltd., the world’s largest mining company, said Oct. 21 iron ore output rose 7 percent to 61.3 million tons in the three months to Sept. 30, two days after Brazil’s Vale said it produced a record 88.2 million tons in the period. Rio reported third-quarter output rose 12 percent.
Holdings at ports in China, tracked as one gauge of demand, have started expanding again. The stockpiles rose 0.9 percent to 83.95 million tons on Oct. 23, the highest level since May, according to data from Shanghai Steelhome Information Technology Co.
Fortescue stock dropped as much 5.9 percent to A$2.41 in Sydney, and traded at A$2.43 at 12:20 p.m. local time, while Rio was 1.1 percent lower at BHP lost 0.6 percent. The trio are Australia’s three largest iron ore exporters.
Source: http://www.bloomberg.com/