The iron ore price fell for the fourth straight day, down 2.2 per cent overnight on Thursday, showing signs that its recent rally is weakening as Chinese steel prices fall to record lows on weak demand.
The benchmark iron ore price for immediate delivery to Qingdao port in China has fallen 6.2 per cent to $US61.51 a tonne from last week's high of $US65.61.
Westpac economist Robert Rennie said Chinese rebar prices had more of an effect on iron ore than iron ore on rebar, and that relationship had diverged in May when iron ore rallied 12 per cent while steel prices fell as construction activity in China cooled off.
"There is robust long term relationship between rebar and iron ore and that we should expect in the fullness of time that this relationship should continue," he said.
"I sense that the continued slump in Chinese rebar prices will drive iron prices lower once additional supply enters the market later this year."
Chinese rebar fell 0.9 per cent over the past week, after data released from China last week revealed a decline in daily steel production of 2.2 per cent, from 1.81 million tonnes at the start of May to 1.77mt by month's end.
"While iron ore prices have strengthened in recent weeks, we do not believe the rally is sustainable without improved steel fundamentals," RBC Capital Markets analyst Fraser Phillips wrote in a note.
Macquarie Capital Securities analysts led by Graeme Train noted that in its June steel sector survey that "sentiment is becoming more negative as orders decline and profitability stagnates".
"Infrastructure orders are the only positive, with most other sectors turning down and as demand fades, steel inventory as stopped falling - unusual for the time of year," he said.
National Australia Bank senior economist for Asia Gerard Burg said with the current supply and demand dynamics, the bank believed $US60 ($77.40) a tonne was a fair price for iron ore and the retraction of the past few sessions may be returning to a balance.
But he said it was difficult to predict a highly state controlled industry in light of the weaker demand.
"It is a major employer and also steel mills provide a lot of social services to their communties, so from an economical point of view it is difficult to shut them down," he said.
Futures contracts were not adding much cause for optimism. The September iron ore contract on the Dalian Commodity Exchange fell 3.5 per cent in local morning trade on Wednesday to 427 yuan ($89.74) a tonne, after hitting the floor of 425 yuan. Meanwhile Chinese rebar for October delivery dropped 1.6 per cent to 2229 yuan a tonne after hitting a record low of 2223 yuan a tonne on the Shanghai Futures Exchange.
Taking a lead from some high cost American and African producers which have recently pulled out of the market, there was the potential for Australian iron ore producers to reach a pullback point sometime this year, Mr Burg said.
Source: Australian Financial Review
- metaljunction »
- Metal News
Metal News & Events
METALJUNCTION PUBLICATIONS
Coal Insights (English) Monthly
![Steel Insights](/assets/images/news/coal-insights.jpg)
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
![Steel Insights](/assets/images/news/ICMW_Jan09.gif)
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
India Steel Market Watch (English) Monthly
![Steel Insights](/assets/images/news/ISMW.gif)
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
![Steel Insights](/assets/images/news/SteelInsights.jpg)
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.