Iron ore is getting beaten back down in a told-you-so rout after a procession of analysts, Australia’s central bank and miners themselves delivered warnings that gains were unsustainable, with latest blow landed by the world’s top shipper saying prices are set to revisit the $50s.
In Singapore, SGX AsiaClear futures tumbled 4% to $72.94 a metric tonne, while the most-active contract on the Dalian Commodity Exchange plunged 6.2% to the lowest close in five months as steel sank. The losses probably signal a further drop in the benchmark spot price after 62% ore in Qingdao fell to $80.92 a dry tonne Thursday, according to Metal Bulletin.
Iron ore is in retreat after hitting the highest level since 2014 in February amid concern that rising supplies from mines in Brazil, Australia and possibly China will again exceed demand, with warnings from Barclays and BHP Billiton flagging losses. There’s also concern that additional curbs in China may hurt consumption, even as manufacturing picks up. On Friday, Australia’s government forecast in a quarterly report that a pullback is likely.
“There’s an expectation that tighter credit conditions in China will lead to some downturn in property construction in the second half,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “At the same time, both seaborne and domestic Chinese iron ore supply looks likely to increase. With Chinese port inventories remaining high, traders are seeing downside risk.”
Iron ore’s losses on Friday came as base metals fell and gold surged after the US launched a cruise-missile attack against Syria, hurting demand for risk assets while buoying havens. Miners’ shares dropped, with Fortescue Metals Group losing 3% in Sydney as Rio Tinto Group declined 1.1%.
Ore may slump to $55 a metric ton in the final quarter of 2017, with the average for the full year seen at $65.20, Australia’s Department of Industry, Innovation and Science estimated in the report on Friday. Next year, it will average of $51.60, the department said, with forecasts referring to prices free-on-board from the world’s largest exporter.
“Growing supply, primarily from Australia and Brazil, is expected to steadily outpace demand growth over the rest of 2017. As a result, the price is projected to decline,” the department said. Current price levels are unlikely to be sustained beyond the short term, it said.
That’s just the latest in a string of warnings. In February, Reserve Bank of Australia Governor Philip Lowe said that commodity prices were going to come back off again, highlighting in remarks to lawmakers that: “We shouldn’t start to think that the iron ore price is going to stay around $90.”
Capital Economics said in March that there’s some doubts about China’s demand, and predicted a retreat to $45 by year-end. Barclays and Citigroup are also among sceptics, while a string of executives from BHP Billiton, the world’s largest miner, have also said there’s scope for a pullback.
China’s steelmakers suffered a fresh setback this week as the European Union hit producers with five-year tariffs on hot-rolled coil after an anti-dumping investigation. The tariffs could accelerate cutbacks in local production and are another potential headwind for iron ore, according to Spooner.
The report from Australia predicted a rising tide of exports from the biggest producers. Australian shipments will rise 8.3% to 876mn tonnes this year, and expand to 902mn tonnes next year, the department projected, while Brazil is seen shipping greater volumes every year to 2022.
The department also highlighted the risk posed by the potential restart of mines in China, while noting that more stringent environmental curbs may limit local supplies. It flagged unprecedented stockpiles held at China’s ports, warning these “will eventually place downward pressure on the price.”
The recent “spike is attributed to a combination of unexpectedly robust demand from China’s steel mills, temporary supply disruptions and slower-than-anticipated growth in global iron ore supply,” the department said.