Economy, Business And Markets

Iron Ore Prices in Downward Spiral

Iron Ore Prices in Downward SpiralIron Ore Prices in Downward Spiral

The price of Iran’s iron ore of 62% purity destined for China’s Qingdao Port slipped $0.58 to $38.92 per ton, reversing the ascending trend of the previous year’s last two weeks and dispelling hopes of the mineral’s early gain in 2016.

Iran is following the global downtrend in iron ore prices, with forecasts for 2016 failing to present a pleasant picture.

Global iron ore prices hovered around the $40 mark as ore with 62% purity delivered to Qingdao rose 1.8% to $40.22 a ton on Thursday, after slumping 4.1% to $39.51 a day earlier, according to Metal Bulletin.

The steelmaking commodity bottomed at $38.30 on December 11, a record-low in daily prices since May 2009.

“There’s a strong possibility that iron ore falls below $30 in 2016,” Citigroup Inc. Head of Asia Commodity Research Ivan Szpakowski told Bloomberg on Thursday after the bank cut prices forecasts through to 2018 in a report.

In the first half, “the biggest pressure is actually from the demand side. It’s actually going to come from weak steel demand in China”, he said.

The raw material is seen at $36 this year, 12% lower than previously forecast, and $35 in 2017 and 2018, analysts including Szpakowski wrote in the January 14 report.

The base-case forecast over a three-year horizon was cut to $35 from $40, while the bear-case was put at $28.

The falling prices come as the world’s largest iron ore miners, including Rio Tinto Group and BHP Billition Ltd. in Australia and Brazil’s Vale SA, expanded low-cost output while demand growth stalled in China.

Lower costs, including freight and energy and weakening currencies in producer nations, are enabling suppliers to reduce their breakeven rates and withstand lower prices while forcing smaller rivals to shut up shop. Costs had fallen more than expected, the bank said.

“Steel output in China will probably shrink 2.6% this year, as local consumption weakens and mills encounter stiffer opposition to exports,” Szpakowski said.

Supply fell 2.2% to 738.38 million tons in the 11-month period of last year, according to official data. China, which makes about half the world’s steel, is set to report full-year output on January 19.

For the time being, however, China shows no sign of fatigue. The country’s inbound iron ore shipments climbed 17% to a record 96.27 million tons from a month earlier, according to Bloomberg.

Full-year imports were 2.2% higher at 952.72 million tons, also an all-time high.