Jasmine Ng Singapore
IRON ore capped the biggest monthly loss since May as steel mills in China curtailed output before a holiday and major producers added supply, signalling that the bear market that began last year had further to run.
Ore with 62 percent content delivered to Qingdao, China, dropped 1.7 percent to $62.21 (R723.04) a dry ton on Friday, the lowest price on record going back to May 2009, according to Metal Bulletin. The steel-making raw material slumped 13 percent in January, dropping for a third consecutive month.
Iron ore lost 47 percent in 2014 after Rio Tinto, BHP Billiton and Vale raised low-cost output, spurring a glut just as China slowed. The market’s fundamentals would probably remain very weak this year and possibly into 2016, Moody’s Investors Service said last week.
Steel mills in China are starting shutdowns earlier than normal before the Lunar New Year break, which begins on February 18, as sales remain poor, according to Australia & New Zealand Banking Group.
“My crystal ball says iron ore will remain low,” Piet-Hein Ingen Housz, the global head of metals at ABN Amro Bank, said.
Demand in winter was usually lower than the rest of the year as steel mills cut output before the Lunar New Year, while the so-called big four mining firms were producing more than ever to gain market share and weed out smaller producers, he said.
Commodities might decline about 10 percent over the next three months, Goldman Sachs said in a January 27 report. The bank pared its 2015 iron ore forecast to $66 a ton from $80 in a January 23 note that followed similar downgrades from at least four other banks this month, including Citigroup and UBS.
ABN’s Ingen Housz said while prices might rebound above $70, they were unlikely to climb higher than $80.
China expanded 7.4 percent last year, the slowest pace since 1990, according to the statistics bureau. Crude-steel production rose 0.9 percent in 2014 compared with 7.5 percent a year earlier, to post the weakest growth in data going back 24 years.
Steel mills are cutting output before the Lunar New Year, putting further pressure on prices, according to Vanessa Lau, a Hong Kong-based analyst at Sanford C Bernstein.
Iron ore demand was unlikely to recover before the Lunar New Year holiday as steel sales remained weak, ANZ said in a note on Thursday.
That’s not stopping major low-cost producers from expanding amid expectations that they will remain profitable, while less competitive suppliers are forced to curtail output or close. Rio plans to boost output to 330 million tons this year from 295 million tons in 2014, while BHP kept a target for 225 million tons in financial 2015 from 204 million tons a year earlier.
Fortescue Metals had no intention of reducing production, chief executive Nev Power said on Thursday. Supply from China and from non-China sources had been cut back in line with expansions of the low-cost output, Power said, adding that prices were being driven more by speculators than fundamentals.
Prices remained vulnerable to the downside given the slowing growth rate in steel production and recent expansion in global iron ore capacity, Moody’s said as it cut ratings on Australia’s Atlas Iron.
Ore might fall as low as $55 this year, Thiago Lofiego, an analyst at America Corporation, said at a seminar in Rio de Janeiro on Thursday.
Helen Henton, a director at Roubini Global Economics, said: “It will be the more marginal, higher-cost producers that are pushed out, rather than the major producers, as the latter have drastically reduced their costs.” – Bloomberg