Iron ore’s starting to buckle after a series of warnings that prices are set
to drop amid rising global supply, and as investors fret about the potential
impact of escalating trade tensions between the US and China.
In Singapore, SGX AsiaClear futures sank as much as 1.3% to $62.98 a ton,
the lowest since April 9, and traded at $63.20, while the contract on the
Dalian Commodity Exchange fell almost 4% this week.
On Wednesday, benchmark spot ore eased to $63.30 a ton, just 50 cents above
the year’s low.
Since retreating into a bear market in March, iron ore has held in a narrow
range in the mid-$60s as investors weigh robust steel production in top user
China against prospects for increased mine supply.
This week, Australia, the world’s largest shipper, forecast that prices will
fall back into the $50s as output expands while China begins to reduce
purchases. Lower prices reduce income for top miners Rio Tinto Group, BHP
Billiton [JSE:BIL] and
Vale SA.
The “macro environment has been a providing a key drag on sentiment with the
looming trade tariffs,” said Hui Heng Tan, a research analyst at Marex
Spectron. That, coupled with both a period of lower demand and supply
increases, means there’s “a perfect storm in the making,” Tan said.
Others expecting prices to ease include China’s Orient Futures, as well as
National Australia Bank Ltd. “Slowing steel demand in China should flow through
into weaker demand for iron ore over the next few years,” NAB said in a note. Prices
are expected to drop toward $60 by the end of 2018, it said.
There are potential drivers for iron ore, including moves in China to
redouble efforts to curb pollution.
On Tuesday, the State Council issued a three-year plan to tackle smog,
tightening constraints on industrial production. In the past, similar measures
have supported prices of premium iron ore products even as they mandated steel
output curbs.
And Goldman Sachs said commodities are forecast to rise over the next 12
months as trade war concerns are overblown, although a midweek note from the
bank did not give an explicit outlook for iron ore.
“The trade war impact on commodity markets will be very small, ” it said.
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