Iron ore price getting crushed again

Benchmark spot prices are now barely more than $5 above record lows hit the beginning of April and down 14% in one short week.

The rally in iron ore was fuelled by declining stockpiles in China where steelmakers consume more than 70% of the 1.3 billion tonne seaborne trade.

But after falling for 10 weeks in a row, port stocks climbed again last week to just below 82 million tonnes.

While declining stockpiles seemed to indicate stronger demand, the disconnect between steel and iron ore prices pointed to underlying weakness in the market.

Steel prices continued to fall on Monday with the most-traded October rebar contract on the Shanghai Futures Exchange closing at a record low of 2,027 yuan ($326) per tonne on Monday, down a whopping 5% in a single session.

Steel prices have been hurt by a combination of a government crackdown on the country’s most polluting industries and declining fixed investment.

So far Beijing’s economic stimulus measures have had little effect and a rout on Chinese stock markets is also damaging investor confidence.

And it could get worse before it gets better.

Reuters quotes Bernstein analyst Paul Gait as saying “we’ve not necessarily seen the lows (for the year) and short-term momentum is clearly negative, but sooner or later … probably by the fourth quarter … demand for steel will recover because of Chinese policy.

Led by Vale (NYSE:VALE) with a 4.5% fall shares in the big three producers all declined in New York trade on Monday wiping billions from their combined market value of some $230 billion.

American depository receipts of BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) lost 4% and 2.2% respectively bringing year to date market worth declines at the Anglo-Australian giants to double digits.

Hardest hit has been Fortescue Metals Group (ASX:FMG) which dropped 5.8% in value on the Sydney Stock Exchange on Monday. The world’s number four producer is down nearly 40% so far this year.

Source: Capital Economics