Iron Ore Posts First Weekly Gain in Eight as Drop Seen Overdone

Jun 06, 2014 7:44 am ET

June 6 (Bloomberg) -- Iron ore rose, capping the first weekly advance in eight, as investors judged a slump that drove the benchmark index to a 20-month low was excessive.

Ore with 62 percent content delivered to the Chinese port of Tianjin rose 0.2 percent to $94.50 a dry ton today, data compiled by The Steel Index Ltd. showed. The commodity used to make steel added 2.9 percent this week after sinking 12.9 percent in May, dropping every month since December in the longest run of monthly losses on record.

The world’s biggest mining companies including BHP Billiton Ltd. expanded output from low-cost mines in Australia, betting that rising exports to China would more than offset lower prices. Iron ore entered a bear market in March and fell below $100 a ton last month for the first time since 2012. The worldwide seaborne surplus will increase to 79 million tons this year and 158 million tons in 2015 from last year’s 1 million tons, Morgan Stanley said.

“Chinese traders think prices at this level are a good buy in the medium term,” Ivan Szpakowski, an analyst at Citigroup Inc. in Shanghai, said by phone. “Once you get a couple of people starting to buy, you’ll quickly get a few follows because they think it’s a value buy.”

Prices have slumped 30 percent this year, reaching $91.80 on May 30, the lowest since Sept. 7, 2012.

Surging supplies of seaborne iron ore will also trigger the closure of high-cost output in China, banks from Goldman Sachs Group Inc. to Australia and New Zealand Banking Group Ltd. forecast. Miners face pressure from declining prices for imported material because local ore costs $75 to $145 a ton to produce, the national development and reform commission said in a report on May 28.

“The implied iron ore supply in China has been declining for the last four weeks, which is price-positive,” said Georgi Slavov, the London-based head of basic resources research at Marex Spectron Group. The price-drop has also prompted steel mills to restock cheaper seaborne iron ore, he said.