Iron Ore Drops to Six-Month Low as Goldman Sees Correction

Jan 15, 2014 2:17 am ET

(Adds Dalian futures price in fifth paragraph.)

Jan. 15 (Bloomberg) -- Iron ore fell below $130 a dry ton for the first time since August, on expectations demand in China will slow before the country’s Lunar New Year holiday as Goldman Sachs Group Inc. forecasts further losses.

Ore with 62 percent iron content delivered to the Chinese port of Tianjin declined 1.1 percent to $129.50 a ton yesterday, the lowest since July 16, according to data from The Steel Index Ltd. That’s the first time the raw material traded below $130 a ton since Aug. 1, the data show.

Iron ore climbed 15 percent in the second half of 2013 as China, the world’s biggest buyer, boosted stockpiles to the highest in more than a year. Prices may correct as soon as the end of this quarter as production increases, according to Goldman Sachs. Cold weather and new year holidays typically curb output in China, Credit Suisse Group AG says. The holiday runs from Jan. 31 to Feb. 6 this year.

Prices have dropped “on a marked slowdown in restocking from steel mills ahead of the Chinese New Year and weaker downstream steel prices,” Australia & New Zealand Banking Group Ltd. analysts led by Mark Pervan wrote in a note today. “With mills reporting ample inventory cover, nearing 45 days, we expect buying to remain light and some further downside in spot prices.”

Iron ore for May delivery on the Dalian Commodity Exchange fell 0.1 percent to close at 879 yuan ($145) a ton. Steel reinforcement bar for May delivery on the Shanghai Futures Exchange gained 0.2 percent to close at 3,498 yuan a metric ton. Prices tumbled for a fifth week in the period ended Jan. 10.

Supply Glut

A global seaborne surplus will emerge in the second quarter as supply outweighs demand, Goldman said Jan. 12, predicting prices to average $108 a ton this year. Credit Suisse said Jan. 6 that it expects a “significant correction” as miners including Rio Tinto Group and Fortescue Metals Group Ltd. push the global surplus to 42 million tons this year.

“We’ll see where things develop over the year, but certainly there is more supply coming into the market this year than happened last year,” Evy Hambro, the manager of BlackRock Inc.’s $8 billion World Mining Fund, said on Jan. 10. Rio, Fortescue, BHP Billiton Ltd. and Vale SA will account for about 93 percent of supply growth this year, Credit Suisse estimates.

Iron ore inventories at Chinese ports were 83.57 million tons on Jan. 10, the highest since November 2012, according to Beijing Antaike Information Development Co. Steel stockpiles gained for a fourth straight week to 5.52 million tons as of Jan. 10, according to data from Shanghai Steelhome Information Technology Co.

Iron ore can be measured in dry tons, or metric tons less moisture. At the port of Tianjin, moisture can account for 8 percent to 10 percent of the ore’s weight.

--Editors: Jarrett Banks, Brett Miller