Iron ore retreats on doubts over China demand
Iron ore is being battered. After rounds of warnings 2017’s rally may have been overdone, the raw material is in retreat as doubts gather about the strength of demand in China as steel sells off and record port stockpiles highlight rising supplies.
SA’s Kumba Iron Ore traded more than 4% lower at about R203,60 a share for much of the day on Tuesday. Steel producer ArcelorMittal was 1.82% lower at R11.87 a share in late trade.
In China, futures on the Dalian Commodity Exchange sank into a bear market as steel in Shanghai posted the longest run of declines in 2017, while the SGX AsiaClear contract in Singapore fell for a fourth day.
Benchmark spot prices from Metal Bulletin extended a loss below $90 a tonne to the lowest since February 9.
“Steel demand in China is clearly robust, but iron-ore prices remain very elevated versus fundamentals, and it is only a matter of time before they normalise to below $60,” said Ian Roper, an analyst at Macquarie Group.
“We have had a negative view on prices for a while, but they have held up longer than we expected.”
Iron ore surged in 2016 and extended gains into 2017 amid optimism about the outlook in China. While prices advanced, analysts flagged the potential for a pullback. Prices fell on Wednesday amid a global equity sell-off and as China’s central bank stepped in to calm a spike in money-market rates. “I don’t think many investors will be surprised to see iron ore in particular give up some ground from current levels,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “Inventory levels are high and we are moving towards a period of seasonally weaker demand.”
In Dalian, futures for September delivery lost 4.7% to 577 yuan ($81) a tonne, the lowest since January 9. Prices fell 15% on Tuesday as the mostactive contract rolled to September and have now lost more than 20% from February’s closing high. In Shanghai, rebar dropped for a fifth day.
Ore with 62% content in Qingdao fell to $84.99 a tonne on Wednesday, trimming the gain this year to 7.8%, said Metal Bulletin. The benchmark peaked at $94.86 on February 21, the highest since August 2014.
The drop has hurt miners’ shares. In Sydney, Fortescue Metals Group tumbled more than 5%, while Rio backtracked 2.6%. In Brazil on Tuesday, Vale sank 8.5% after the stock surged more than 30% in January.
Producers and banks have flagged the risk of a decline. BHP chief financial officer Peter Beaven has warned markets should brace for much lower prices. With supplies expanding, JPMorgan Chase sees a pullback to $60 by the end of 2017.
“It is definitely a risk-off day,” said David Lennox, a resource analyst at Fat Prophets.
On the Chinese steel industry, “we have had all the stories, but we have not yet seen the demand”, Lennox said.