Iron ore will complete a third straight quarterly decline today (Tuesday) to post the longest losing run on record as a slowdown in China’s economy curbs demand growth in the largest buyer and worsens a global surplus.
Ore with 62 percent content delivered to Qingdao, China lost 17 percent this quarter to $77.97 a dry metric ton, the lowest price since September 2009, according to data from Metal Bulletin Ltd. That follows a 19 percent drop between April and June and 13 percent retreat in the first three months. The steel-making ingredient is headed for the longest stretch of quarterly losses since the data series began in 2009, Bloomberg reported.
Prices tumbled this year after BHP Billiton Ltd. and Rio Tinto Group (RIO) raised low-cost output, spurring a global glut and prompting the closure of less competitive producers. The iron ore market is in the midst of a transition without precedent in recent commodity history, with a battle for survival between miners, according to Macquarie Group Ltd. A property slump and tight credit conditions restricted demand growth in China.
“We had a very sharp slowdown in steel demand” in China, Ivan Szpakowski, an analyst at Citigroup Inc. in Hong Kong, said by phone. “Demand has been very poor and it’s yet to really pick up. We’re still forecasting moderate improvement over the next couple of months.”
Slump in Price
Iron ore’s slump this quarter is deeper than the 11 percent loss in the Bloomberg Commodity Index. (BCOM) The gauge, which doesn’t include iron ore as a member, dropped to a five-year low on Sept. 22 as oil prices retreated on increased supplies, and a stronger dollar and concern that China is slowing hurt metals.
Iron ore will remain weak for a sustained period as supply exceeds demand and China’s economy slows, according to Tom Albanese, former head of Rio Tinto Group. High-cost producers are facing a so-called pain point at prices of about $80 a ton, Albanese, chief executive officer of London-based Vedanta Resources Plc, said in an interview in Singapore Monday.
The worldwide surplus will increase from 52 million tons this year to 163 million tons in 2015, according to Goldman Sachs Group Inc. The price will average $80 a ton in 2015, the bank predicts. So far this year, it’s averaged $104.51.
Prices may rebound to the mid-$80s a ton by year-end as Chinese mills restock, JPMorgan Chase & Co. said in a report yesterday that also cut annual forecasts for next year and 2016. The 2015 target was pared 9 percent to $88 a ton and the outlook for 2016 was reduced 11 percent to $84 a ton, the bank said.
The rout in prices hurt producers’ stocks. Rio Tinto dropped 13 percent to A$59.58 this year in Sydney as BHP lost 11 percent to A$33.87 and Fortescue Metals Group Ltd. (FMG) declined 40 percent to A$3.48. In Brazil, Vale fell 29 percent in 2014.
