Iron Ore Falls Below $80 On China Swoon--- Lowest Since 2009

By Jasmine Ng and Phoebe Sedgman at Bloomberg News 

Iron ore slumped below $80 a metric ton for the first time in five years on speculation that China’s slowing economic growth will curb demand in the world’s biggest user, exacerbating a global surplus.

Ore with 62 percent content delivered to Qingdao, China, fell 0.5 percent to $79.69 a dry ton, the lowest level since Sept. 16, 2009, according to data from Metal Bulletin Ltd. The drop followed seven weeks of declines as the steelmaking raw material had the longest run of losses since May.

The commodity plunged 41 percent this year as BHP Billiton Ltd. (BHP) and Rio Tinto Group (RIO) expanded output in a bet that the increase in volumes would more than offset falling prices as higher-cost mines are forced to shut. China’s Finance Minister Lou Jiwei said this week growth in Asia’s largest economy faces downward pressure. China’s economy remained stuck in “low gear” this quarter, with retail and residential real-estate industries struggling, according to the China Beige Book.

“The ramp-up in global supply and downturn in Chinese property sector are driving prices lower,” Paul Bloxham, chief Australia economist at HSBC Holdings Plc, said by e-mail today. “We expect Chinese miners to cut back production, which should keep prices well above the costs of major Australian producers.”

Iron ore’s decline came after raw materials dropped to the lowest level in five years yesterday. The Bloomberg Commodities Index (BCOM) retreated 5.1 percent this year, poised for a fourth year of losses.

Worldwide Glut

Global output of seaborne ore will exceed demand by 52 million tons this year and 163 million tons in 2015, according to Goldman Sachs Group Inc. The price will average $102 a ton this year and $80 in 2015, according to the bank. So far this year, it’s averaged about $105.25 in Qingdao. China accounts for about 67 percent of global seaborne demand.

China’s economy is stable and job creation has been sound, Minister Lou said on Sept. 21, damping speculation of broad-based stimulus. The government won’t make major policy adjustments in response to changes in individual indicators, he said. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics unexpectedly increased this month, suggesting export demand is helping the economy withstand a property slump.

“The PMI was a positive result, but we still think further stimulus from the Chinese authorities will be needed to support growth,” HSBC’s Bloxham said.

While prices are now seen close to the so-called floor set by mine closures in China, the supply overhang in the next two or three years will keep rates capped at less than $100 a ton, according to Australia & New Banking Group Ltd.

Seeking Balance

“We still see supply being ahead of demand for the next two to three years,” Mark Pervan, ANZ’s head of commodity research, said at a conference in Melbourne yesterday. “What we do see later in the decade is that to balance out.”

Iron ore may average $90 to $95 over the next five years, according to Wayne Calder, deputy executive director at Australia’s Bureau of Resources and Energy Economics. The Canberra-based agency’s price forecast refers to spot ore with 62 percent content free-on-board Australia.

Mine closures around the world will help the raw material to level out even as Australia’s suppliers increase capacity further, Calder said last week. The agency is due to update its annual forecasts tomorrow.


David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

Get Access