Iron ore drops be­low $70 in years

At th­ese prices we still have a very de­cent business, says BHP

The Star Early Edition - - BUSINESS REPORT - Chanya­porn Chan­jaroen Sin­ga­pore

IRON ORE traded be­low $70 (R768) for the first time in five years as ris­ing low-cost sup­plies by the world’s top min­ers widen a global glut amid slow­ing de­mand from China, the big­gest user.

Ore with 62 per­cent con­tent de­liv­ered to Qing­dao fell 1.2 per­cent to $69.58 a dry ton yes­ter­day, the low­est since June 2009, data from Metal Bulletin showed. Prices are head­ing for a 13 per­cent loss this month, the most since May.

Iron ore slumped 48 per­cent this year as surg­ing out­put from Rio Tinto Group, BHP Bil­li­ton and Vale, the three largest min­ers, spurred a glut. China’s cen­tral bank un­ex­pect­edly cut in­ter­est rates last week for the first time since 2012 to stim­u­late the econ­omy fore­cast to record the weak­est an­nual pace in more than two decades.

“The big­gest prob­lem is on the sup­ply side as ma­jors like BHP and Rio are push­ing huge vol­umes into the lack­lus­tre de­mand en­vi­ron­ment,” Paul Gait, an an­a­lyst at San­ford C Bern­stein in London, said this week. “To me $65 feels like a floor.”

The global seaborne mar­ket needs to ab­sorb a sur­plus of about 110 mil­lion tons next year, almost dou­ble the 60 mil­lion tons ex­pected in 2014, ac­cord­ing to Gold­man Sachs. The bank de­clared the “end of the Iron Age” in a Septem­ber re­port as a Chi­nese-led de­mand surge over the past decade that had brought record prof­its for pro­duc­ers came to an end.

China cut the one-year de­posit rate by 0.25 per­cent­age point to 2.75 per­cent, while the one-year lend­ing rate was re­duced by 0.4 per­cent­age points to 5.6 per­cent, ef­fec­tive from last Satur­day, the Peo­ple’s Bank of China said.

It would take three to six months be­fore the ef­fect of the rate cut would feed through the econ­omy, San­ford’s Gait said. “At th­ese prices, we still have a very de­cent business,” BHP chief ex­ec­u­tive An­drew Macken­zie said last Thurs­day, adding that the time for mas­sive ex­pan­sions of iron ore are over. “We’ve been fairly clear that prices at about th­ese lev­els were what we were ex­pect­ing for the longer term.”

The mar­ket had hit bot­tom and prices might re­bound, Stan­dard Char­tered said in a re­port. Prices would rise again over time, Rio Tinto chief ex­ec­u­tive Sam Walsh told Sky News Tele­vi­sion. In the long term, the mar­ket would not be over­sup­plied all the time, Vale said at the be­gin­ning of the month. – Bloomberg

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