Iron ore's in free fall. Prices plummeted as port stockpiles in China expanded to the highest level in more than a year following moves by local authorities to quell frenzied speculation in raw-material futures.
Ore with 62 per cent content delivered to Qingdao tumbled 5.7 per cent to $US54.99 a tonne, according to Metal Bulletin. Prices have slumped 22 per cent since peaking at more than $US70 on April 21, and Monday's drop follows a 12 per cent loss last week. Miners' shares fell, with Rio Tinto Group losing as much as much 8 per cent in London, Rio de Janeiro-based Vale retreating 7.8 per cent and Cliffs Natural Resources tumbling as much as 18 per cent.
Iron ore is falling back to Earth after a dramatic surge of speculation in China had helped to hoist benchmark prices to the highest in 15 months. The mania prompted regulatory authorities and exchanges to team up to quell the excesses, while banks including Brazil's Itau Unibanco Holding warned the price gains weren't justified in an oversupplied market. Data on Friday showed port holdings have expanded to almost 100 million tons.
"The recent price spike was well above the levels supported by market fundamentals," said Gerard Burg, senior Asia economist at National Australia Bank in Melbourne. "Stocks have been steadily rising, given the rebound in imports. This highlights again that the market isn't that strong, and the price spike was excessive."
Iron ore's slump on Monday was preceded by losses in Singapore and Dalian futures. The SGX AsiaClear contract for June settlement slid as much as 9.4 per cent and futures in Dalian dropped 7.1 per cent, retreating alongside contracts for steel reinforcement bar and coking coal.
Inventories held at ports across China increased 1.4 per cent to 99.85 million tons last week to the highest since March 2015, according to data from Shanghai Steelhome Information Technology Co. The holdings, which supply the world's largest steel industry, have expanded 7.3 per cent this year.
Cargoes from Australia's Port Hedland will probably rise in the coming months as the Roy Hill mine backed by billionaire Gina Rinehart ramps up, Goldman Sachs said in a note received Monday, referring to the world's largest bulk-export terminal. Iron ore's outlook over the longer term is negative as the rally has helped higher-cost miners gain greater resilience in the face of oversupply, the bank said.
Exchanges in China including Dalian last month hiked fees, cut hours and boosted margins in raw-material futures to roll back the trading fervour. While iron ore demand was seen as relatively strong, even more measures may be in the offing, according to Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group in Sydney.
"The combination of a rise in port inventories in China, and rumours of further curbs," said Hynes. "Iron ore demand is relatively strong. There continues to be signs that construction activity in the Chinese housing market is improving and steel producers have low inventories."
Source: AFR.com