Iron-ore prices tumbled to a 5½-year low as a sharp decline in steel prices and softening iron-ore demand from China, the world’s largest consumer, weigh on prices of the steelmaking material.
The price of ore with 62% iron content fell 3.9% Monday to $63.30 a metric ton at China’s Tianjin Port, according to data provider The Steel Index. That is its lowest level since May 2009.
Prices of the commodity halved last year as big Australian miners such as BHP Billiton and Rio Tinto pumped supplies into the market, although robust demand from China’s steelmakers provided a degree of support to iron ore.
But that source of demand is now looking shaky, and iron-ore prices have continued to fall this year.
Ample supplies of Chinese steel have caused the price to slump by 8% in the past two weeks, after a 14% decline in Chinese steel prices for all of 2014. Expectations of slowing demand ahead of the Lunar New Year holiday in mid-February have also hit iron-ore prices, analysts say.
“With the recent collapse in steel prices, many Chinese steel mills are now not profiting from producing steel—they were in 2014,” said Jeffrey Landsberg, managing director of U.S.-based Commodore Research & Consultancy. “Many people don’t realize that Chinese steel prices were rather resilient last year, but that prices are now collapsing.”
One problem for Chinese steelmakers is that they can’t easily export their excess supply. Last year, China gradually stepped up its steel exports as domestic demand dropped. It sold mainly to countries across Asia such as South Korea, Vietnam and the Philippines.
China exported a record 10.2 million tons in December, but demand for its steel appears to be waning, analysts say, with demand from Asian countries unable to keep pace with China’s rising supplies at a time when many are facing moderating growth.
A 6% fall in Dalian iron-ore futures in the past week preceded the large overnight fall in the benchmark physical iron-ore price, according to a report from Australia & New Zealand Banking Group Ltd. Chinese steel mills are starting plant shutdowns for maintenance earlier than normal ahead of the Lunar New Year, which starts Feb. 19, it said.
Rising supply from Australia, the world’s largest exporter of iron ore, is still adding to the glut of the raw material. A report by Capital Economics said Australia’s iron-ore output is expected to grow 6% this year from 2014.
“The combination of a further increase in global iron-ore supply this year and only subdued demand growth suggests iron-ore prices will continue to drift lower,” the report said.
Source: The Wall Street Journal
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