Sun, Mar 26, 2017 - Page 14 News List

Iron rally turns to rout as futures post record loss

Bloomberg

Iron ore is getting beaten down after a flurry of warnings that gains might be vulnerable.

Futures in China have posted an unprecedented weekly loss, the most-active contract in Singapore fell for a sixth day and spot prices had the biggest slump since November last year.

“It’s an overdue correction in prices, which have risen too much,” Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co, said in an e-mail, while cautioning that the drop has come despite a positive underlying picture. “Fundamentals for iron ore remain very strong at present.”

Iron ore last year rallied on stronger-than-expected demand and extended gains into this year, benefiting miners from Brazil’s Vale SA to BHP Billiton Ltd and Rio Tinto Group, as China bought record volumes.

This year’s advance has unfolded against a backdrop of warnings that gains might prove fleeting, with mines continuing to expand and concerns that China’s steel demand might falter.

Still, imports by the top buyer are expected to be at an all-time high this month, close to 100 million tonnes, and remain strong next month, Leszczynski said.

“I don’t think this is the big sell-off yet,” Tomas Gutierrez, an analyst at Kallanish Commodities, said by telephone from Shanghai.

This week’s poor performance is attributable to concerns over fresh property curbs in China, as well as uncertainty about the policy outlook from US President Donald Trump’s administration and higher US interest rates, Gutierrez said.

In Dalian, most-active futures collapsed 19 percent this week — the most on record — as steel prices backtracked, with reinforcement bar in Shanghai tumbling 12 percent.

On Friday, the iron ore contract for September lost as much as 2.2 percent to 567.5 yuan per tonne, the lowest since Jan. 10, before ending level at 580.5 yuan.

Benchmark spot ore with 62 percent content in Qingdao on Friday fell 1.5 percent to US$85.06 per dry tonne, taking this week’s retreat to 7.9 percent, according to Metal Bulletin Ltd.

In Singapore, SGX AsiaClear futures had the fourth weekly loss in five, about 9 percent lower.

Plenty of banks and even some producers have flagged risks.

Barclays PLC this week said prices will slump into the US$50s in the second half as mills’ profitability is set to drop, encouraging producers to shift consumption toward abundant lower-grade ores.

The bank was restating a bearish position.

The drop has hurt mining shares. Rio declined 4.5 percent in Sydney trading this week, wiping out most of this year’s gain.

In Brazil on Thursday, Vale retreated 1 percent and is on course for a monthly decline.

Other investors are banking on continued demand.

On Friday in Australia, China State Construction Engineering Corp (中國建築工程), the nation’s biggest builder, signed an agreement with BBI Group Pty, owned jointly by New Zealand’s Todd Corp and Nyco Pty, to develop a US$4.6 billion mine and infrastructure project.

China is the world’s largest steel maker, accounting for about half of global supply, and it is also the leading buyer of seaborne ore.

Holdings at ports have expanded to an unprecedented 132.5 million tonnes.

Other metals:

Gold on Friday rose US$1.30 to US$1,248.50 an ounce. The metal is up 1.5 percent from last week’s US$1,230.20.

Silver jumped US$0.16 to US$17.75 an ounce, taking its weekly gain to 2 percent.

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