The price of iron ore has slid below $US50 for the first time since the end of February as investors fret about rising Chinese stockpiles and signs of a jump in marginal supply.
At the end of the latest session, iron ore delivered to the Port of Tianjin in China slipped 0.2 per cent to $US49.90 a tonne. It is the first time the commodity has traded below $US50 since the end of February.
The commodity has tumbled 12 per cent through a run of six sessions without a gain, with the downtrend kicked off by last week’s news stockpiles of iron ore at Chinese ports had risen above 100 million tonnes for the first time in over a year.
The development raised the prospect of flagging demand over coming months.
Adding to the soft sentiment is the recent rebound in the US dollar as the Federal Reserve hints at an imminent rate hike, while analyst warnings on the return of marginal producers to the market has exacerbated the pain.
“Most notable this month was the comeback of the non-traditional suppliers in the seaborne iron ore market of India, Canada and Iran,” Deutsche Bank said in a note.
“This clearly highlights the latent capacity in the market, which is able to respond to price spikes.”
Analysts at Deutsche said the sudden rebound in prices to almost $US70 in April had “interrupted the supply-side adjustment” and pointed to further price pain through the remainder of the year.
“Although Chinese demand could surprise on the upside, we expect the supply side to respond
pushing iron ore prices back to the low $US40/tonne by year end,” the note said.
The downturn will be causing consternation in Canberra given the Federal Government recently backed in Treasury forecasts of $US55 a tonne for the 2016-17 Budget.
As it stands, hundreds of millions have been wiped from potential revenue since the price forecast was made.
Source: The Australian