Iron Ore Seen by StanChart Falling More Than Estimated on Supply

Feb 14, 2014 1:56 am ET

Feb. 14 (Bloomberg) -- Iron ore prices may drop more than previously forecast this year as China will be unable to absorb record supply from Australia as growth slows, according to Standard Chartered Plc.

The steel-making raw material may slip to $118 a dry metric ton from the previous forecast at $120, Judy Zhu, a commodity analyst at the bank in Shanghai wrote in a report today. The bank lowered its estimate for the first quarter by 3 percent to $122 a ton, according to the note.

Spot prices in China, which accounts for more than 60 percent of the seaborne trade, were at $122 a ton yesterday, 23 percent below last year’s high set in February amid near-record stockpiles at ports. Global supply will exceed demand by 136 million tons this year as Australia ramps up production at a time of weak demand in China, Zhu said.

“Prices should experience significant downward pressure in 2014 as the market moves from deficit to surplus,” she wrote.

Ore remains under pressure as cash-tight Chinese steel mills refrained from buying raw materials, while importers locked in long-term contracts will continue to haul in shipments, swelling inventory at ports nearing a record level, she wrote.

The seven-day repurchase rate, a gauge of interbank funding availability in the country, in December climbed to the highest level since a record liquidity squeeze in June.

Imports by China, the top user of steel, jumped to a record 86.83 million tons in January as demand increased from buyers who used the commodity as collateral to get credit. Ore with 62 percent iron content delivered to the Tianjin port fell 9.1 percent this year.

Stockpiles at Chinese ports rose to 97.25 million tons as of Feb. 7, up 25 percent in the last 12 months and near the record 100.1 million tons set in July 2012, according to data tracked by the Shanghai Steelhome Information Technology Co.

--Feiwen Rong and Glenys Sim. Editors: Sungwoo Park, Jarrett Banks