18/12/2014 – Iron Ore Slumps to Five-Year Low as China Slowdown Curbs Demand

 

Iron ore sank to the lowest level in more than five years as signs of a slowdown in China’s economy deepened concerns that demand for the steelmaking raw material will weaken from the largest buyer, increasing a global surplus.

Ore with 62 percent content delivered to Qingdao, China, lost 0.8 percent to $68.05 a dry metric ton today, according to data compiled by Metal Bulletin Ltd. That’s the lowest since June 2009, and extends this year’s slump to 49 percent.

The world’s biggest suppliers including Rio Tinto Group, BHP Billiton Ltd. (BHP) and Vale SA (VALE5) have expanded output, pushing the market into oversupply. Australia this week predicted the commodity will trade at about $60 a ton over the next two years. A Chinese factory gauge fell to a seven-month low in December, adding to signs of a slowdown that may cut demand for iron ore, used to make steel for buildings and appliances.

“The price drop is exacerbated by the weaker Chinese PMI data,” Kelly Teoh, an iron ore derivatives broker at Clarkson Securities Ltd. in Singapore, said before today’s price data was released. “Fundamentally, we’ve got a huge supply situation. Supply isn’t going to stop.”

The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics fell to 49.5, missing the median estimate of 49.8 in a Bloomberg survey and lower than last month’s 50.0. Numbers below 50 indicate contraction.

This year’s “price fall reflects the competitive expansion in Australia, a shift that is sidelining high-cost producers,” Morgan Stanley said in an e-mailed report yesterday. The bank cut its 2015 price outlook by 9 percent to $79 a ton and the 2016 forecast by 14 percent to $75 a ton, ranking iron ore as the least-preferred metal after gold on a 12-month view.
No Letup

BHP has signaled that there won’t be a slowdown in the drive by producers to boost output. If the higher “volume doesn’t come from our business, it’s going to come from other businesses,” Jimmy Wilson, BHP’s president of iron ore, said in an interview broadcast by Australia’s Nine Network Nov. 30.

Prices will return to an average $85 to $90 next year as high-cost mines shut, Vale Chief Executive Officer Murilo Ferreira said last month. Australia’s Roy Hill Holdings Pty, developing a mine in the Australia’s ore-rich Pilbara, aims to be “one of the last people standing” as higher-cost suppliers close, Chief Executive Officer Barry Fitzgerald said on Nov. 20.
Global Supply

“Whilst low-cost mines in Australia and Brazil are expected to continue to expand global supply, on the demand side, China’s growth outlook for 2015 has been downgraded,” Australian Treasurer Joe Hockey said on Dec. 15 in the mid-year economic and fiscal outlook document. “Weakness in the property sector and the ongoing transition from resource-intensive growth is expected to constrain Chinese steel demand.”

China, which buys 67 percent of global seaborne supply, is on track to record its weakest annual growth since 1990. The central bank cut interest rates for the first time in two years last month, and economists expect more monetary easing next year.

Iron ore will average $67 a ton next year, 24 percent less than previously forecast, and $65 in 2016, down 23 percent, JPMorgan Chase & Co. said in an e-mailed report received Dec. 9. Low-cost producers are unlikely to curb supplies, the bank said.

 

Source – Bloomberg.com