Iron ore is at risk of extending declines in the coming weeks

Iron ore is at risk of extending declines in the coming weeks after a drumbeat of warnings of a pullback helped to spur the biggest one-day slump in more than a year, intensifying investor concern about rising supplies and hammering miners’ shares.“It just appears to be a real capitulation phase going on in iron ore at the moment,” Ric Spooner, chief market analyst at CMC Markets in Sydney, said after the benchmark spot price collapsed 8.5% last week to the lowest since November 7. “This process may have further to go before we begin to reach a base, which is somewhere more like in the $50-to-$60 range.”Iron ore entered a bear market last week as a procession of analysts, Australia’s government and even some miners said gains to the highest since 2014 were unsustainable. The potential for a significant drop was foreseen, given a possible downturn in Chinese construction, increased supplies and high inventory levels at ports, according to Spooner. Steel prices in China, the top customer for seaborne ore, have also been sinking.“I don’t think anybody should be surprised to see the iron ore price come back to more sustainable levels,” Fortescue Metals Group chief executive officer Nev Power said on a media call after a production report. New supply is coming from Vale, Roy Hill Holdings and Anglo American, he said, adding: “What we’ll see is the iron ore price return to where you’d predict it to be off the supply curve, which is somewhere around that $60 to $65 a tonne.”Spot ore with 62% content in Qingdao dropped $6.34 to $68.04 a dry tonne last week, declining for a fifth day, according to Metal Bulletin. On Thursday, the benchmark, which hit almost $95 in February, rose 0.9% to $68.68 in last week’s final pricing given the public holiday in Singapore on Friday.In Sydney, Fortescue plunged 6.8% to A$5.50, the lowest since November, while Rio Tinto Group fell 4.4%. BHP Billiton, which is facing calls from Elliott Management Corp for an overhaul, dropped 4%. The trio is Australia’s largest shippers. Not everyone is bearish. The pullback is probably a short-term weakness, Tom Price, a London-based analyst at Morgan Stanley, wrote in a note received last week. The bank sees $70 to $90 as a stable range until the second half, when seaborne exports typically peak and steel activity slows before winter.Futures in Asia showed some support on Thursday as traders weighed the outlook, trade data from China as well as Power’s comments. In Singapore, the SGX AsiaClear contract was 1.1% higher at $66.91 a ton after slumping 5.7% the day before. Futures in Dalian, China, ended little changed. Fortescue reported a 6% drop in shipments in the quarter to March 31, in line with analysts’ expectations. Iron ore and steel demand in China remained strong during the first three months of 2017, driven by construction and infrastructure activity, the company said in a statement.Data from China pointed to robust imports and higher supply. Inbound volumes were 95.6mn tonnes in March, just short of a monthly record, while first-quarter shipments jumped 12% to 271mn tonnes, according to the National Statistics Bureau. That’s a record quarterly figure.The sell-off in iron ore followed a slew of bearish outlooks, many of which have flagged prospects for rising supply from Australia and Brazil, the top shippers. After Barclays, Australia’s central bank and BHP flagged reasons for a drop, Goldman Sachs Group added to the chorus with a report affirming its view iron ore could fall to $60.“The slump reflects a worsening outlook for steel demand and the fact that the previous run-up in prices has been too great,” Wu Zhili, an analyst at Shenhua Futures Co, said by phone from Shenzhen. “I don’t see the drop as being excessive; it’s well within expectations.”