Iron ore takes a battering as bear market engulfs China futures

SINGAPORE: Iron ore is getting battered. After rounds of warnings that this year’s rally may be 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 put a spotlight on rising supplies.

In China, futures on the Dalian Commodity Exchange sank into a bear market as steel in Shanghai posted the longest run of declines this year, while the SGX AsiaClear contract in Singapore fell for a fourth day. Benchmark spot prices from Metal Bulletin Ltd are set for further losses below US$90 a dry metric tonne.

“Steel demand in China is clearly robust, but iron ore prices remain very elevated versus fundamentals, and it’s only a matter of time before they normalise to below US$60,” Ian Roper, an analyst at Macquarie Group Ltd, said in an e-mail. “We’ve had a negative view on prices for a while but they’ve held up longer than we expected.”

Iron ore surged last year and extended gains into 2017 amid optimism about the outlook in China, benefiting miners including Rio Tinto Group, BHP Billiton Ltd and Vale SA. While prices advanced, analysts as well as Australia’s central bank and even some miners flagged the potential for a pullback. Prices fell yesterday 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,” Ric Spooner, chief market analyst at CMC Markets in Sydney, said in an e-mail. “Inventory levels are high and, at the same time, we are moving toward a period of seasonally weaker demand, while markets are anticipating ongoing build in seaborne supply.”

In Dalian, futures for September delivery lost 4.7% to 577 yuan a tonne, the lowest close since Jan 9. Prices fell 15% on Tuesday as the most-active contract rolled to September, and have now lost more than 20% from last month’s closing high. In Shanghai, rebar dropped for a fifth day.

Ore with 62% content in Qingdao fell to US$87.59 a dry tonne on Tuesday, trimming the gain this year to 11%, according to Metal Bulletin. The benchmark peaked last month at US$94.86 a tonne on Feb 21, the highest price August 2014 amid optimism about consumption in China. — Bloomberg