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Iron ore prices at new 5-1/2 year low as rout takes hold

[SHANGHAI] Spot iron ore prices hit a new 5-1/2 year low on Thursday as more signs emerged of slowing Chinese economic growth, although iron ore and steel futures in China edged higher on interest from bargain hunters.

A deepening iron ore glut and worries over a sharper economic slowdown in top buyer China will drive the average 2015 price for the steelmaking ingredient to a record low of $68 a tonne, a Reuters poll showed.

China plans to cut its growth target to around 7 per cent this year, its lowest goal in 11 years.

"We see weakness going into the Chinese New Year and probably a bit of a lift afterwards. The Chinese steel mills and iron ore traders we just surveyed are looking to restock a bit," said Bart Jaworski, analyst at Davy Research.

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He added, however, the firm's survey found a "resounding bearishness" for iron ore prices over the next 12 months.

Benchmark 62 per cent grade iron ore for immediate delivery to China fell 0.6 per cent to US$62.30 a tonne, its lowest since May 2009, data compiled by the Steel Index showed.

Iron ore futures for May delivery on the Dalian Commodity Exchange closed up 1.3 per cent at 476 yuan (US$76) a tonne, while the most traded May rebar contract on the Shanghai Futures Exchange closed up 1.7 per cent at 2,507 yuan a tonne. Both contracts had their biggest daily gains since Jan 6.

Analysts said the futures rebound was a short-term technical bounce as fundamentals would continue to be weak this year.

"Steel demand will improve only slightly after the Chinese New Year given the government has approved a lot of infrastructure projects recently. But it won't offset sluggish demand amid the property downturn," said Yu Yang, a Shanghai-based analyst at Shenyin & Wanguo Futures.

Baosteel, China's biggest listed steelmaker, will cut hot-rolled coil prices for March bookings. And industry data showed output from China's large steel mills fell 5.1 per cent over Jan 11-20 as producers responded to weak demand.

The cuts have weighed heavily on iron ore prices, forcing many high-cost miners to suspend production or shut permanently.

"There's more evidence higher cost miners are exiting the market," Fortescue's head of sales and marketing, David Liu, told reporters on a conference call after the company delivered a strong quarterly report.

Mr Liu said if prices stay low and there is no further Chinese stimulus, a total of 50 million-70 million tonnes of Chinese production is expected to exit this year. Outside China, about 80 million-100 million tonnes of high cost output was in the process of exiting the market, Mr Liu said.