After inevitable slump, iron ore faces more risks as China slows: Reuters Chinas biggest-listed steel maker Baosteel said a slump in iron ore was inevitable and prices had further to fall, as traders said some buyers in the worlds top consumer of the raw material were trying to delay shipments after panic selling. A surprise fall in Chinas exports last month heightened worries of a slowdown in the worlds second-biggest economy, sending iron ore prices to the lowest since October, 2012, and with year-to-date losses of more than a fifth. Already in a bear market, iron ore may be at risk of falling further as increased output from top miners Vale, Rio Tinto and BHP Billiton floods the market just as China slows. Prices have been irrational and the current decline is inevitable, said He Wenbo, chairman of Baoshan Iron & Steel (Baosteel). What will be the low point? I think that current prices of approaching $100 are still on the high side, said He, who believes Chinas steel output could stop growing as early as 2018, seven years ahead of BHPs forecast peak output estimate. Iron ore for immediate delivery to China .IO62-CNISI fell 8.3 percent on Monday, the largest one-day percentage fall in 4-1/2 years, to $104.70 a tonne, according to data compiled by the Steel Index. The rout echoes a slump in prices in September, 2012, when iron ore hit a three-year low of $86.70 a tonne, shutting many high-cost mines in China and forcing global producers to rethink expansion and focus on cost cuts. The broad move lower is here to stay, said Ivan Szpakowski, commodities strategist at Citigroup who sees roughly 170 million tonnes in additional seaborne supply in 2014. Prices are moving on a cyclical basis due to the increase in supply. The question had been the timing of it, and the rapidity of the fall, thats something that had not been expected, Szpakowski said. Perhaps the biggest warning indicator that iron ore prices were bound to slide sooner than later was the mountainous stockpile in Chinas ports. Those inventories crossed the 100-million-tonne mark in late February and reached a record 105 million tonnes last week CASH CRUNCH The growing use of iron ore as a collateral to secure loans due to tight credit conditions in China helped boost stockpiles as imports hit a record high of 86.8 million tonnes in January. Chinese steel mills and traders holding iron ore as a financing tool were rushing to sell to repay loans, traders said, unleashing more material into the market that could drive prices further down. About 25-30 percent of the inventory is tied to financing deals, traders estimated. Steel mills and traders are telling BHP and Rio Tinto to delay their shipment from April to May. The reason is all their financing is stuck at the port so they cant open new letters of credit, said an iron ore trader in Singapore. The shipments involve around 2 million tonnes of iron ore, the trader said. Rio Tinto and BHP said they had not seen any postponement or cancellation of shipments. I havent heard of cancellations or defaults by steel mills but many of them, especially traders, are delaying or halting their shipments now, said a Shanghai-based trader, adding that mills and traders faced a severe cash crunch after banks stopped lending to them. In July last year, China signaled it would cut off credit to force consolidation in industries plagued by overcapacity as it seeks to end the economys dependence on extravagant investment funded by cheap debt. That campaign targeting sectors such as steel, where excess capacity is estimated to be at least 200 million tonnes, has got added urgency as Beijing vows to contain choking pollution from industries such as steel. Sixteen of the 148 steel companies in Chinas top producing Hebei province had stopped producing due to financial difficulties. Steel demand in China, the worlds biggest consumer and producer, has been weak since the start of the year as a slowing economy curbs demand for the building material. Construction activity, which typically picks up from March, is unlikely to spur a strong recovery in demand for steel as Beijing pursues economic expansion that is driven less by investment and more by domestic consumption. But miners such as Rio Tinto remain confident that Chinese demand for iron ore will hold up. We continue to see attractive long-term demand for iron ore, particularly from China, Rio Tinto iron ore chief Andrew Harding said at an industry conference in Perth. There will be short-term volatility, proof of which you are seeing this week, he said.
Posted on: Tue, 11 Mar 2014 12:00:01 +0000
Trending Topics
Recently Viewed Topics
© 2015