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Singapore - Iron ore is headed for another poor week, capping another bad month in what is shaping up to be another tough year as the world’s largest miners boost low-cost output while China’s steel demand contracts.
Prices are set for a third weekly loss after dropping below $50 a metric tonne and are 12% lower in October, on course for the biggest monthly fall since March. Rio Tinto Group lost 5.1% in Sydney this week, while Fortescue Metals Group plummeted 19%, the most since 2008.
“We may see iron ore ultimately declining to between $40 and $45,” Dang Man, an analyst at Maike Futures in Xi’an, China, said by phone on Friday.
“Mills are expected to cut production. Once that happens, the effect of weakening demand will be felt more strongly in iron ore.”
This week iron ore breached a trading range of $50 to $60 that’s held for more than three months, pulled lower by the twin factors of surging supply from producers including Rio Tintoand weaker consumption in China.
Steel demand is shrinking at an unprecedented speed and mills are losing money, according to the China Iron & Steel Association. Iron ore may stay below $50 for some time, Capital Economics said, while Clarkson Capital Markets sees an average of $47 this quarter.
Port stockpiles
Ore with 62% content delivered to Qingdao fell 0.6% to $49.65 a dry tonne on Thursday, the lowest since July 9, according to Metal Bulletin. Prices dropped as port stockpiles tracked by Shanghai Steelhome Information Technology expanded to the highest level since May. The commodity has fallen 30% so far this year.
A weak steel market and oversupplied ore trade constrained buying interest this week, Morgan Stanley analyst Tom Price wrote in a note received on Friday. Prices are under pressure as steelmakers tend to scale back production before the northern hemisphere winter lull, curbing demand, Price said.
Infrastructure development and housing growth in Asia will drive iron ore use, Andrew Harding, chief executive of Rio’s iron ore division, was quoted as telling In The Black magazine. While China has had short-term hiccups, the company sees a few decades of strong development across Asia, Harding told the magazine.
Miners’ shares are in retreat. Rio ended 1% lower at A$50.65 in Sydney to cap a third weekly loss, while BHP Billiton was 6.4% lower this week. Together with Fortescue, the trio is Australia’s three largest shippers.
“The major producers’ supply expansion will remain a long- term factor- they’re still ramping up output - and demand is very poor,” said Dang at Maike. “From the perspective of shipments and port inventories, there’s hardly any support for prices.”
