Mining and Heavy Industries

Iron ore market wobbles

Iron ore stockpiles at Port Hedland. Photo: BHP Billiton

The spot price of iron ore has dropped significantly in the last six weeks, but experts are split over the short- to medium-term outlook for the major commodity.

Iron ore soared to almost US$95 a tonne in February, but fell to as low as US$81 this week.

Some analysts are figuring this is the end of the recent uptick, with China’s demand slowing as it deals with an oversupply in the steel sector.

But Credit Suisse is said to be more optimistic about the short-term outlook for the commodity.

A report from Credit Suisse analyst Matthew Hope was quoted by Fairfax.

“Falling futures caused uncertainty for steel mills and they stopped buying iron ore,” he reportedly wrote.

“This buyers’ strike caused iron ore to fall.

“But physical steel has declined only 3% because construction season is underway and demand is real.”

Hope reported six-month rebar futures in Shanghai had fallen 13% in recent days, but physical rebar prices had only dropped 3%.

“It is sentiment towards steel rather than demand that changed,” he was quoted as saying, “causing speculators to unwind positions.

“Iron ore has reflected this change in sentiment. After an almost one-to-one movement of Tangshan billet prices and iron ore, iron ore fell 8% in nine days against 4% for billet.”

Hope reportedly said China’s steel inventory is “relatively depleted,” in contrast to the country’s iron ore stocks.

“Chine has strong and predictable seasonality in its steel inventory. Traders build up stocks in winter months and sell them down across the rest of the year.

“In the first ten days of March, China’s stocks were low at 30 million tonnes, about 15% below normalised levels for this time of year. Mill production is needed.”

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