Iron ore is facing renewed pressure and risks sliding back into the US$60 range, as China’s economy shows signs of cooling and global mine supply increases, while planned steel capacity cuts in the world’s biggest consumer this winter could further cut demand.
Ore with 62 percent content in Qingdao on Friday fell 2.5 percent to US$72.13 per dry metric ton, the lowest level since July 28, extending the previous day’s 3.4 percent loss, which was the most since May, according to Metal Bulletin Ltd.
The commodity, which almost hit US$80 last month, posted the first back-to-back weekly decline since June.
The steelmaking raw material is in retreat after a slew of negative outlooks, with Barclays PLC saying the commodity is “living on borrowed time.”
Miners’ shares dropped with ore on Friday. Rio Tinto Group and BHP Billiton Ltd closed 2.3 percent lower in Sydney, while Fortescue Metals Group Ltd was down 4.5 percent on news that CEO Nev Power was stepping down.
The trio are Australia’s top exporters.
Much of iron ore’s recent strength has been spurred by strong demand in China, but that is about to change, according to a Wednesday report from Barclays, which said its economists see an “impending end” to macroeconomic support.
While the bank did not give a price forecast, it has said previously it sees an average of US$50 by the fourth quarter.
Citigroup Inc has estimated daily production could shrink 8 percent because of the crackdown.
“Steel plant shutdowns will reduce demand for iron ore,” Sinosteel Futures Co (中鋼期貨) analyst Fan Lu (樊璐) said on Friday, adding that there will also be a greater supply of ore arriving in China.
“The commodity is poised to remain in a downtrend,” Fan said.
Oil had its biggest weekly gain since late July as Texas refineries recovering from Hurricane Harvey processed more crude and global demand forecasts brightened.
Futures rose 5.1 percent this week in New York, settling just below the US$50 per barrel threshold that has kept the industry in thrall.
The increase was buoyed by higher demand forecasts from the International Energy Agency and expectations that OPEC and its partners will extend output cuts beyond the March next year expiration date of their deal.
Nearly one-quarter of US refining capacity was shuttered in the wake of Harvey. Two weeks later, only three Gulf Coast refineries remain shut, the US Department of Energy said.
At the same time, the Paris-based International Energy Agency on Wednesday said it expects global demand to climb this year by the most since 2015, while OPEC and its partners were reportedly discussing an extension of its deal to cut output beyond its March expiration.
West Texas Intermediate futures for delivery next month on Friday ended the session on the New York Mercantile Exchange at US$49.89, unchanged from the highest close since July 31 on Thursday.
Brent for November settlement closed US$0.15 higher at US$55.62 per barrel on the London-based ICE Futures Europe exchange. Prices advanced 3.4 percent this week. The global benchmark crude traded at a premium of US$5.18 to November West Texas Intermediate.
The spread between Brent and West Texas Intermediate will narrow in coming weeks as US refining capacity recovers from the disruption by Hurricane Harvey, according to Fitch Ratings Inc’s BMI Research.
Wholesale gasoline rose US$0.03 to US$1.66 per gallon and heating oil added US$0.02 to US$1.80 per gallon, while natural gas fell US$0.05 to US$3.02 per 1,000 cubic feet.
Gold fell US$4.10 to US$1,325.20 per ounce, while silver sank US$0.09 to US$17.70 per ounce and copper lost US$0.01 to US$2.95 per pound.
Additional reporting by AP
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