Iron ore slumps to below $50 a ton again, with more to come

IRON ore extended a slump below $50 (R688.70) a metric ton, dropping to the lowest level since July, as BHP Billiton forecast prices would probably extend their decline for years as output rises, while Vale SA reaffirmed plans to increase low-cost supply.

Prices would deteriorate gradually until they find a level well below $50, Alan Chirgwin, BHP vice president of marketing for iron ore, said in Melbourne. Vale plans to sell 300 million tons in China in 2019, up from 180 million tons next year, China’s Caixin magazine said. Iron ore sank 12 percent in October as surging production from low-cost miners, including BHP, Vale and Rio Tinto Group, combined with weaker consumption in China to spur a glut. The top miners are betting that higher output would enable them to cut unit costs and raise market share while less efficient producers get squeezed.

Shrinking

China’s steel industry contracted further last month, according to the purchasing managers’ index, as the China Iron & Steel Association said steel demand is shrinking at unprecedented speed.

“You’ve got steel mills having very tight margins for a long time, you’ve got ample supply coming out,” Kelly Teoh, an iron ore derivatives broker at Clarksons Platou Futures in Singapore, said. “You’ve got fundamental issues persisting, so nothing’s really changed. Do you think it will last? It’s not going to change in the short term.”

Ore with 62 percent content delivered to Qingdao retreated 0.8 percent to $49.11 a dry ton yesterday, the lowest since July 9, according to Metal Bulletin. Prices – which bottomed at $44.59 on July 8, the lowest since daily data began in 2009 – lost 31 percent this year. They peaked at $191.70 in 2011.

Iron ore will drop over the next few years before finding a new level at the highest breakeven of a major producer in Australia or Brazil.