Iron ore slumps as speculative buying dissipates

[MANILA] Iron ore futures slumped on Monday, with the Dalian benchmark retreating from the 1,000 yuan a tonne level scaled last week when prices were underpinned by strong speculative interest in the steelmaking ingredient.

The most-traded May iron ore contract on China's Dalian Commodity Exchange ended daytime trade down 3.2 per cent at 966 yuan (S$197.11) a tonne.

Iron ore's most-active January contract on the Singapore Exchange dropped 3.7 per cent to US$152 a tonne by 0707 GMT.

As iron ore had hit overbought levels, according to analysts, China's steel producers on Friday pushed for a regulatory probe into the skyrocketing prices and a crackdown on any wrongdoing.

The speculative buying had pushed the benchmark spot price in China to the highest since February 2013 at US$159.50 a tonne on Friday, SteelHome consultancy data showed. Robust iron ore demand from steel mills stoked the latest price rally that was fuelled by growing risks of a supply crunch, as speculators bet on dimming prospects for Brazil's supply recovery and the impact from Australia's cyclone season in early-2021.

"Fundamentals suggest a price between US$90 and US$110/tonne is the fair value at the moment," said ANZ senior commodity strategist Daniel Hynes.

ING analysts expect an increase of up to 100 million tonnes in iron ore supply next year, and said a quick rollout of coronavirus vaccines could underpin demand and support prices above US$100 a tonne.

"However, a gradual rollout means we would probably see more lacklustre demand growth, which could push the iron ore market back into surplus, weighing on prices," they said in a note.

REUTERS