Iron ore collapses into a bear market

[SINGAPORE] Iron ore has been driven into a bear market after an abrupt reversal of fortunes. The commodity that soared in the first half is getting pummeled early in the second as the US-China trade war morphs into a currency battle, supplies pick up and signals suggest softening demand.

Spot benchmark ore has sunk to US$99.50 a ton, more than 20 per cent lower than the five-year peak hit last month, according to Mysteel Global. On Tuesday, futures in Singapore traded lower even after China's central bank set its currency fixing stronger than expected, a move that helped other commodities to gain.

The steel-making commodity has fallen out of favor amid a broader slump in metals as the trade war escalates. The Trump administration formally labeled China a currency manipulator after the country's central bank allowed the yuan to drop beyond a key level. In addition, iron ore is getting undermined as global supply is expected to improve, mainland port stockpiles are rebounding, and a gauge of mills' profitability has turned negative.

Bulk commodities have been "battered by the rising trade tensions," Australia & New Zealand Banking Group said. The tensions have hit when signs of rising supply are worrying the market, it said, referring to Vale SA's plan to bring back more of the capacity that was suspended after a dam burst.

Ore for September was 1 per cent lower at US$94.85 a ton in Singapore at 10:58am, paring a bigger intraday fall after the stronger fixing by the People's Bank of China. Among miners, shares in Rio Tinto Group and BHP Group extended declines in Sydney while Fortescue Metals Group Ltd rose.

A slump in iron ore back below US$100 had been widely flagged by banks and some steel mills, with the focus on expectations for a rebound in seaborne supply after the first-half squeeze. Morgan Stanley has forecast that the raw material will slump to US$90 a ton in the fourth quarter.

BLOOMBERG