Iron Ore Below $90 for First Time Since 2012 as Demand Slows

Jun 16, 2014 7:39 am ET

June 16 (Bloomberg) -- Iron ore declined below $90 a metric ton for the first time since 2012 on signs of slowing demand in China, the world’s biggest user, amid expanding supplies.

Ore with 62 percent iron content delivered to the port of Tianjin dropped 2.1 percent to $89 a dry ton today, the first time the price fell below $90 since Sept. 7, 2012, according to data from The Steel Index Ltd. The raw material lost 3.8 percent last week and retreated in eight of the past nine weeks.

Iron ore slumped 34 percent this year as mining companies including Vale SA and BHP Billiton Ltd. expanded output, betting on sustained growth in demand from China even as economic expansion slowed. Stockpiles at Chinese ports are near record levels, while domestic production is forecast to climb to an all-time high this year as bigger mines open, according to Mysteel.com, the country’s largest industry consultancy.

“Port inventories are still relatively high, so there’s more downside to iron ore prices,” said Helen Lau, a Hong Kong- based analyst at UOB Kay Hian Ltd., predicting a floor of $80 in the second half. “During the summer season, you can expect the continuous slowing down of steel production. Steel mills have no interest in replenishing their stocks.”

Inventories at ports rose 0.1 percent to 106.56 million tons last week, near a record 106.86 million tons reached in the week to May 30, according to Beijing Antaike Information Development Co. Reserves expanded 31 percent this year.

Output of low-grade, unprocessed iron ore may rise 5.6 percent to 1.52 billion tons this year from 1.44 billion tons a year earlier, Shi Zhenglei, a Shanghai-based analyst with Mysteel.com, said by phone today. That’s about 400 million tons of seaborne equivalent.

China’s raw ore has an average iron content of 26 percent, compared with the global benchmark of 62 percent iron, he said.

Futures for July settlement slid 0.8 percent to $89.05 a ton on the Singapore Exchange by 5:31 p.m. local time, extending a drop to the lowest level since the contract started in April last year.