Following a short-lived rally last week that took the commodity to $85 per tonne, the benchmark iron ore price for immediate delivery at the port of Tiajin in China dropped 2.3 per cent to $79.80 per tonne overnight on Monday, the lowest price since September 17, 2009.
Through one of the worst periods for the commodity since the financial crisis, iron ore has climbed just three times in the past 26 trading sessions, with red figures seen in the last six after a surprise 3.9 per cent bounce at the start of last week.
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.
Jitters around the iron ore price intensified on Monday when China Iron and Steel Association deputy secretary-general Li Xinchuang said China’s steel production would peak at about 870 million tonnes a year.
Miners desperate to maintain revenue growth and appease investors have pumped iron ore production at record levels, only to increase the supply glut in China and trigger a 41 per cent plunge in the spot price this year triggering mines close in China, Australia and India.
Despite regular warnings from Chinese authorities over the past six months – including warnings that officials were committed to rebalancing growth away from infrastructure – miners have kept producing, expecting officials in the world’s second- biggest economy would again stomp on the growth accelerator. China’s Finance Minister, Lou Jiwei, said on Sunday the Chinese government would not dramatically alter its economic policy because of any one economic indicator.
“Everyone is nervous about the iron ore price at the moment; are we shifting from heavy industrial [phase] to a consumer-led industrial [phase] in some classical economics professor’s views on development, and does that mean China is going to be using less iron ore? Well these are always the challenges for a mining company to decide which commodities it needs to invest in,” Vale’s director of strategic planning, Stephen Potter, told a mining conference in Melbourne on Tuesday.
The Australian Bureau of Resources and Energy Economics (BREE) said today it expected the iron ore price will average around $94 a tonne for the rest of 2014, significantly lower than the $107 a tonne forecast offered in June. “Further increases in supply indicate increasing price competition will be needed to push more high cost supply out of the market over the next two years,” BREE said in its quarterly report.
“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 on Tuesday. “We expect Chinese miners to cut back production, which should keep prices well above the costs of major Australian producers.”
“Fundamentally, both the iron ore and steel markets are oversupplied and I don’t see any support for prices right now,” said an iron ore trader in Shanghai. “Chinese steel mills offering to sell long-term cargoes into the spot market have further exacerbated the problem of excess near-term supply,” Australia and New Zealand Banking Group analysts said in a note to clients.
Chinese steel producers have been cutting back on long-term iron ore contracts in favor of cheaper spot cargoes, confident that beaten-down prices are unlikely to rebound amid the first global ore surplus in 10 years.