Global Cooling Alert: Iron Ore Tumbles 47% In 2014, At 5-Year Low

By Jasmine Ng and Phoebe Sedgman at Bloomberg News

Iron ore tumbled to the lowest in more than five years as declining home prices in China added to concern a slowdown in the top buyer will deepen, exacerbating a glut. Producers’ shares fell in London, and Australia’s BC Iron Ltd. (BCI) said that miners had to take the prices on offer.

Ore with 62 percent content delivered to Qingdao lost 4.4 percent to $71.80 a dry ton, the lowest since June 2009, according to Metal Bulletin Ltd. yesterday. It’s 47 percent lower this year, heading for the biggest annual drop in data going back to 2009. Futures in Dalian and Singapore fell today, potentially signaling further losses to Metal Bulletin rates.

The raw material fell into a bear market this year as BHP Billiton Ltd. (BHP), Rio Tinto Group and Vale SA (VALE5) boosted output, spurring a global glut just as economic growth slowed in China. Prices may drop to less than $60 a ton next year as output rises further and demand remains weak, Citigroup Inc. said. China’s bad loans climbed in the third quarter by the most since 2005, while new-home prices declined, according to data this week, spurring speculation the cooling economy will weaken further.

“The decline in China’s home prices gives rise to new fears about a significant cooling of the property sector,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said before the price data was released. “Any slowdown in the construction sector would probably be reflected in weaker demand. The global iron ore market is also clearly oversupplied.”

Rio shares dropped 2.5 percent to 2,928 pence, while BHP fell 1.5 percent to 1,636 pence at 8:08 a.m. in London. Fortescue Metals Group Ltd. (FMG), Australia’s third-largest shipper, lost 7.7 percent in Sydney for the lowest close since June 2009.

Home Prices

New-home prices dropped in all but one city tracked by the government in October from a month earlier, the National Bureau of Statistics said yesterday. As the world’s second-biggest economy heads for the weakest expansion in more than two decades, Communist Party leaders have discussed paring the growth target for 2015, according to a person with knowledge of their talks.

“Construction accounts for about 50 percent of China’s steel demand, reflecting the importance of China’s property market to iron ore prices,” Commonwealth Bank of Australia said in a report today. “The fall in prices is consistent with expectations amongst Chinese steel mills, who are anticipating iron ore to fall under $70 a ton in the first half of 2015.”

Prices are expected to improve as China and other markets develop infrastructure and grow their economies, BC Iron Chairman Anthony Kiernan told shareholders at the Perth-based company’s annual general meeting today, according to a copy of his remarks. The producer’s shares dropped 89 percent this year, including a decline today of 12 percent.

‘Find a Market’

“BC Iron’s fundamental view is that Pilbara ore will find a market, given its quality and freight advantage to Asia,” said Kiernan, referring to the ore-rich region in Western Australia where mines are concentrated. “As miners we are price takers and effectively there is little we can do to substantially influence the price we are paid.”

Futures for May delivery declined 2.9 percent to 473 yuan ($77.28) a ton on the Dalian Commodity Exchange. The contract for December settlement fell 1.4 percent to $70.01 a ton on the Singapore Exchange, after most-active prices dropped below $70 for the first time trading started in April 2013.

Global seaborne output will exceed demand by 100 million tons this year from 16 million tons in 2013, HSBC Holdings Plc said in an Oct. 22 report. The commodity will average $99 a ton this year and $85 a ton in 2015, the bank predicts.

Prices of $75 a ton would render at least 60 million to 80 million tons of seaborne supplies unprofitable, Standard Bank Group Ltd. said in a note yesterday. More than 200 million tons will be loss-making should the raw material drop toward $70 a ton, according to the Johannesburg-based bank.

Iron ore will dip into the $50s in the third quarter of next year, Citigroup said in a Nov. 11 report that cut price forecasts. The bear market still has a way to go, according to analyst Ivan Szpakowski.

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