Pause from biggest importer brings down iron ore prices

Tags: Commodities

Decline in Chinese steel prices may also push back buyers

Pause from biggest importer brings down iron ore prices
Iron ore dropped from 15-month highs, as Chinese buying interest thinned following a rapid rise in prices since December, and could slip further on concern that China’s steel demand recovery remains shaky.

Shanghai steel futures fell more than 2 per cent on Friday, snapping a five-week winning streak after data showing higher-than-expected Chinese inflation curbed expectations for further monetary easing to aid the economy.

An intensifying cyclone that has shut two Australian ports handling a fifth of the world’s globally traded iron ore has yet to affect physical prices as Chinese buyers mostly stepped back after a restocking spree that lifted prices by more than 80 per cent since September.

Iron ore swaps fell for a third day on Friday on expectations spot prices could fall further.

Iron ore with 62 per cent iron content, the industry benchmark, dropped 0.2 per cent to $158.20 a tonne on Thursday, according to Steel Index. The price hit $158.50 on Tuesday, the highest since October 13, 2011.

“Prices appear to have risen beyond economic sensibility and are likely to pull back towards our forecast for the price to average $125 per tonne for 2013,” brokerage SP Angel said in a note.

Prices for most swaps declined, reflecting investor expectations that spot rates could fall after a rally that pushed up prices by over a third since early December.

The February contract cleared by the Singapore Exchange dropped to $138 a tonne after settling at $141.06 on Thursday, brokers said, based on afternoon deals in Asia. March slipped to $129 from $135.31.

The Q2 contract was done at $127, down from $130.25 in the previous session, while Q4 eased to $118 after settling at $121.25 on Thursday, brokers said.

Traders were not too worried a tropical cyclone off Australia’s northwest coast would severely disrupt shipments of iron ore from the world’s top supplier.

“The Australian cyclone is a bullish point, but I think everyone is trying to front-run the collapse in prices. The cyclone will only affect things for a few days in the nearby month,” said Jamie Pearce, head of broking at SSY Futures.

“I think realistically the next target will be the $120-$130 range.”

Rio Tinto, the world’s second-largest iron ore producer with 20 per cent of the world market, on Thursday suspended ship loading at the ports of Dampier and Cape Lambert.

About 200 km (124 miles) north from the storm’s path, the Port Hedland marine shipping terminals remained in operation. Port Hedland is used by BHP Billiton, Fortescue and Atlas Iron to supply a further 20 per cent of the world market.

“Unless Port Dampier will be hit directly, we don’t expect a big disruption in shipments. There will probably be a bit of congestion building up, but it's going to be a short-term thing,” said a trader in Singapore.

A decline in Chinese steel prices amid a still fragile recovery in demand may also push back iron ore buyers. China imported a record 70.94 million tonnes of iron ore in December, bringing purchases last year to an all-time high of 743.6 million tonnes.

The most-traded rebar contract for May delivery on the Shanghai Futures Exchange closed down 2.4 per cent at 3,925 yuan ($630) a tonne.

Rebar hit a six-month high of 4,047 yuan earlier this week, but Friday’s drop caused it to post a weekly drop of 1.6 per cent, ending a five-week winning run.

Rebar and other Shanghai-traded commodities followed losses in equities, with Shanghai’s key stock index suffering its worst day in four months after China's annual consumer inflation accelerated to a seven-month high of 2.5 per cent. zz

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