A clump of iron ore from a mine. Picture: REUTERS
A clump of iron ore from a mine. Picture: REUTERS

Iron ore has been dragged back into the $60s-range after getting hit by a barrage of bad news, with persistent concern about rising global supply, fresh questions about the outlook for demand in China, and a warning from Australia’s central bank that the top buyer may be nearing peak steel.

The benchmark spot price for ore delivered to Qingdao slumped 10% in the past four days, ending at $68.85 a tonne on Tuesday, the lowest since July, says Metal Bulletin. The sell-off in the commodity, which hit almost $80 in August, took a breather on Wednesday as prices rebounded but remained below the $70 threshold.

"As we get into the fourth quarter, we see demand in China pulling back, demand for steel pulling back," Paul Butterworth, research manager for steel raw materials at CRU International in Singapore, said.

"It’s quite likely the steel mills will say ‘well, we’ve got sufficient material on hand at the moment, so we can withdraw from the market for now’."

Iron ore is coming under pressure as weakening data from China have undermined the outlook for the coming months at the same time as the top steel maker is planning production cuts over winter to ease pollution.

On Tuesday, Australia’s central bank said prices would drop amid rising supply and prospects that steel output in China was nearing a peak on a per-head basis.

The mainland is the world’s leading ore importer, taking cargoes from mining groups Rio Tinto, BHP Billiton, Fortescue Metals and Vale.

"Although steel demand would pull back, the steel sector is better structured today to manage that reduced demand, so profitability would fall from today’s levels but still be okay," Butterworth said.

But "raw materials could fall more significantly, particularly iron ore, where we’ve essentially still got new material coming into the market", he said, flagging a drop into the low $60s.

Citigroup said on Wednesday that it expected iron ore to fall to $53 in 2018, with the drop driven by rising supply and concern over a China slowdown.

Australian exports may expand to 880-million tonnes in 2018, from 841-million in 2017, while Brazil may rise to 407-million from 385-million, it said.

Bloomberg

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