Iron ore futures edged higher on Thursday, but weak buying interest in top consumer China and a well-supplied market suggest more downside risk for prices as Goldman Sachs predicts global demand peaking next year.
Spot iron ore slipped back below $50 a tonne after a two-day rally this week spurred by a recovery in futures markets. Gains in Dalian iron ore futures on Thursday were more modest compared to earlier in the week.
Up to half of iron ore output by miners outside mega producers Vale, Rio Tinto and BHP Billiton is at risk of closure with global demand set to peak next year, Goldman said.
"New producers have entered the iron ore market over the past decade while a fifth of the world's population embarked on a steel binge," Goldman analysts Christian Lelong and Amber Cai said in a report.
"Now this process is starting to reverse, and we note that many Tier 2 producers that were not commercially viable during the previous bear market are unlikely to survive in the current environment."
Iron ore for immediate delivery to China <.IO62-CNI=SI> dropped 0.8 percent to $49.70 a tonne on Wednesday, after surging nearly 6 percent in the past two days, according to The Steel Index.
Iron ore, which has fallen 60 percent in 12 months, touched $46.70 on April 2, its lowest since 2004-2005, based on annual price contracts that preceded the current spot-based system, compiled by Goldman.
On Thursday, the September iron ore contract on the Dalian Commodity Exchange was up 1 percent at 396 yuan ($64) a tonne by midday. The contract gained more than 8 percent on Monday-Tuesday before retreating on Wednesday.
"I think what we're seeing is a small wave of rebound. The iron ore price will fall again because supply is still so big and China's steel market is far from hot," said an iron ore trader in China's eastern Shandong province.
"We have one cargo from Brazil that we just bought but we want to sell it this week because we don't know where prices will be next week."
Chinese steel prices rose far less than iron ore this week, reflecting slow demand. The most-traded rebar on the Shanghai Futures Exchange was last up 0.3 percent at 2,321 yuan a tonne.
China's steel output shrank in the first quarter after consumption dropped last year for the first time in three decades.
Source: Reuters
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