Iron ore has taken a one-two punch as China’s moves to cool frenzied speculation in raw material futures hurt prices in the top user, while rising port stockpiles signal ample supply for steelmakers.
Benchmark prices for cargoes delivered to Qingdao have lost more than 9 percent in the past two sessions, while futures in Dalian fell for a third day on Thursday, declining as much as 4.8 percent. The decline has hurt miners’ shares, with BHP Billiton Ltd., Rio Tinto Group and Fortescue Metals Group Ltd. lower in Sydney after Vale SA fell in Brazil.
Iron ore is retreating from a 15-month high in April as the authorities in China quell the spike in speculation in commodities contracts, including iron ore, steel and coking coal. Fortescue Chief Executive Officer Nev Power this week praised China’s moves, describing the level of speculative trading as unhealthy, while investor Jim Rogers said the authorities’ actions were terrific. Holdings at China’s ports have expanded to the highest since March 2015.
‘Huge Quantities’
“The wildcard in relation to iron ore at the moment is the Dalian metal futures exchange, where there are huge quantities of iron ore being traded,” Rio Chief Executive Officer Sam Walsh said at the company’s annual meeting in Brisbane on Thursday. “I know the Chinese government is working to put greater controls on that exchange, because the volumes at the moment are excessive.”
Ore with 62 percent content delivered to Qingdao retreated 5.3 percent to $60.09 a dry metric ton on Wednesday, paring gains this year to 38 percent, according to Metal Bulletin Ltd. Futures on the Dalian Commodity Exchange sank 20 yuan to 415 yuan a ton at 11:30 a.m. local time while contracts for steel reinforcement bar and coking coal also fell.
“Inventories have been accumulating, while speculative interest is also starting to wane; more losses could be on the cards,” Dang Man, an analyst at Maike Futures Co., said by phone. “The rally we’ve seen has little grounding in fundamentals as supply-side pressure remains.”
Investors’ appetite for futures has waned after the exchanges raised fees and margins amid orders from regulators to limit speculation. Fortescue’s Power said the Chinese government is playing “a really good role” of encouraging market forces while at the same time not letting markets get out of control.
Steel mills in China, which account for half of global supply, have been ramping up output as product prices recovered, resuscitating profit margins. Production in March was a record, and Fitch Ratings Ltd. has forecast a further increase in April, while warning that the rising supply may hurt prices.
“There is additional supply coming on, Vale are bringing on more supply, Roy Hill is bringing on more supply, FMG seems to be increasing their volumes progressively,” Rio’s Walsh said, referring to the Brazilian miner as well as Fortescue and the Pilbara project backed by billionaire Gina Rinehart. “Those will have an impact on supply and demand.”
Source: Bloomberg.com