Mining and Heavy Industries

Chinese stockpiles put dent in iron ore price

Iron ore has now entered what investors call a “bear market”, with the spot price dipping below US$75 a tonne this week as large Chinese stockpiles put a dent in demand.

With the price now down more than 20% from its US$95 a tonne peak in February, the market has formally entered what investors refer to as “bear”.

After Treasury last week forecast iron ore to fall to as low as US$55 a tonne, some analysts have said Chinese stockpiles are beginning to shrink, suggesting the price may be in for a rebound.

Whatever the case, all experts seem to agree, volatility will be the name of the game in the short- to medium-term.

“We are moving into an age of more volatility,” Philip Kirchlechner, director of consultancy Iron Ore Research, reportedly told The Australian.

“The speculation exacerbates the volatility and often drives the price away from supply and demand fundamentals.

“I don’t think this is a sign of a collapse. I think it’s a short-term view driven by a speculative trend.”

While Kirchlechner doubted the validity of the dip, Barclays analyst Dane Davis reportedly told Bloomberg there was some material reason behind the price change.

“The weakness in prices was driven by a slackening demand in end-use steel demand,” Davis was quoted as saying.

“When that occurred, steel producers switched to lower-quality iron ores, which were inj abundance.”

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