Iron ore drops back after 'surprising blip' that notched record

[SINGAPORE] Iron ore dropped on Wednesday, eroding Monday's record surge, amid a revival in concern that global supply is outpacing demand.

Ore with 62 per cent content delivered to Qingdao fell 8.8 per cent to US$58.02 a dry metric ton, according to e-mailed data from Metal Bulletin Ltd. The price dipped 0.2 per cent on Tuesday after Monday's 19 per cent rally to the highest since June. The retreat was preceded by losses on futures in Singapore and China.

Iron ore powered higher on Monday after China's government talked up its commitment to sustaining growth, bolstering the outlook for demand and spurring speculation that the advance had been reinforced as some investors rushed to close out bets on losses.

The rally prompted banks from Goldman Sachs Group Inc. to Citigroup Inc. to say that the gains wouldn't last, citing slowing steel demand in China and rising mine supply. The raw material has slumped for the past three years amid a worldwide surplus.

"We have seen this surprising blip on Monday into the US$60s, we don't think it will stay there and it will come back," Morgan Ball, managing director of Australian junior producer BC Iron Ltd, told reporters at an industry conference in Perth, Western Australia, on Wednesday.

"You may see it settle in that US$45-to- US$55 range, which is a number that is potentially interesting to us."

The global iron ore market remains grossly oversupplied, demand in China is faltering and there's a severe glut of steel, according to Li Xinchuang, deputy secretary-general of the China Iron & Steel Association. Mr Li, whose group represents the top mills in the country that makes half of the world's steel, said that the recent gains probably won't last.

This week's gyrations had been driven by shifts in futures in China, according to Lourenco Goncalves, chief executive officer of Cliffs Natural Resources Inc, the largest US producer. The price is controlled by the futures market and by speculation on the Dalian exchange, Mr Goncalves said in an interview.

"It has no correlation at this point with the physical market," said Mr Goncalves, whose company also has mines in Australia that ship output to customers in Asia. 

On Monday, "money poured into the market and that was it" as investors reacted to the comments from Premier Li Keqiang at the weekend, Mr Goncalves said.

BLOOMBERG