For iron ore, it is the morning after the night before. Prices have given up almost all of the gains inspired by Donald Trump’s surprise win and a speculative frenzy in China, with a surge in port stockpiles in the top user reminding investors that fundamentals still count.
“The speed of the recent rally leaves it open to the charge that price action has been too much, too fast,” Dane Davis, an analyst at Barclays Plc in New York, said in a note that asked “After the party....the hangover?” The balance of risk for iron as well as copper is skewed to the downside as the dollar strengthens and the effects of Trump’s win wear off, according to Davis.
Iron ore prices barreled to a two-year high this month as investors celebrated Trump’s victory on the outlook for infrastructure spending at the same time that commodities futures volumes surged in China. The rally has been thrown into reverse after mainland exchanges raised charges to quell the fervor, and the U.S. currency advanced on prospects for higher interest rates. The port holdings data have added to the bearish mix, reinforcing signs of ample supply.
“As it did earlier this year, China has cracked down on speculation in the iron ore market,” Davis said. “With these stricter standards in place, the iron ore price should continue to ease off recent highs, though it may find support from continued highs in other steel raw materials, such as met coal, and a domestic steel market that looks to set to grow production in 2016.”
Trump’s Win
In Asia, the SGX AsiaClear contract was little changed at $66.89 a metric ton at 11:49 a.m. on Monday. That follows a 15 percent plunge last week, and puts prices just above the $64.78 close on Nov. 8, the last day of trade of before Trump’s win. On the Dalian Commodity Exchange, futures are at 558 yuan ($81) a ton, compared with the 519 yuan close on Nov. 8.
Benchmark spot with 62 percent content at Qingdao fell 8.8 percent last week to $72.79 on Friday, capping the first weekly drop in almost two months, according to Metal Bulletin Ltd. Prices, which remain 67 percent higher in 2016, may average $58 this quarter and $50 next year, according to Barclays.
As prices sank last week, port inventories in China climbed to the highest since September 2014, according to Shanghai Steelhome Information Technology Co. The holdings rose 2.6 percent to 110.58 million tons, the biggest percentage increase in more than a year. They’re up 19 percent in 2016.
Miners’ shares have been whipsawed by iron ore’s sudden surge and slump. In Sydney, Fortescue Metals Group Ltd., Australia’s No. 3 shipper, dropped 7.8 percent last week after a 19 percent advance the week before. Brazil’s Vale SA gained 15 percent in the period to Nov. 11, then lost 6 percent last week.
The recent surge in prices “has to do with speculation, and trading has since become more rational,” said Dang Man, an analyst at Maike Futures Co. in Xi’an, China. “Iron ore’s fundamentals have never been great. The huge increase in port stockpiles doesn’t bode well.”
Source:Bloomberg.com