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Iron ore approaches 2009 low, Citi cuts forecasts

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Spot iron ore prices continued their descent and were close to their lowest level in more than five years as sluggish steel demand in top consumer China curbed any immediate need for mills to replenish stocks of the raw material.

Citigroup has slashed its 2015 iron ore price forecast to $58 a tonne from $65, citing a decline in supply costs. The bank also cut its 2016 estimate to $62 from $65.

Benchmark 62 percent grade iron ore for immediate delivery to China <.IO62-CNI=SI> dropped 0.9 percent to $67.90 a tonne on Tuesday, according to data compiled by The Steel Index.

The price of the steelmaking ingredient nearly halved last year amid a supply glut, touching a low of $65.60 on Dec. 23, its weakest since June 2009.

Chinese steel producers were in no rush to buy spot iron ore cargoes, especially as winter generally halts construction activity and thus cuts demand for steel, said an iron ore trader in Shanghai.

“Steel demand will only see some recovery probably after the Spring Festival in February,” he said, referring to the Lunar New Year holiday next month.

“I also don’t think we’ll see a lot of restocking ahead of the holidays because supply is largely steady.”

The most traded rebar for May delivery on the Shanghai Futures Exchange fell 1.2 percent to 2,472 yuan ($399) a tonne by 0316 GMT, not far above the 2014 trough of 2,417 yuan.

Citi analyst Ivan Szpakowski sees further risks for iron ore prices this year and has cut his third-quarter estimate to $53 a tonne from $60.

Szpakowski said lower transportation costs and a depreciation in the currencies of iron ore exporters had cut costs of those shipping to China far more than those of Chinese producers.

“The fall in prices has lowered the critical cost support for iron ore and this is likely to continue falling as producer currencies depreciate further versus the U.S. dollar and local diesel prices continue to fall,” he said in a report.

The decline in transportation costs due to sliding energy prices was eroding the geographic advantage of Chinese iron ore producers, he said.

“The burden of further supply curtailments is thus shifting towards Chinese miners,” said Szpakowski.

The May iron ore contract on the Dalian Commodity Exchange fell 0.8 percent to 495 yuan a tonne.


Rebar and iron ore prices at 0316 GMT


Contract Last Change Pct Change

SHFE REBAR MAY5 2472 -31.00 -1.24

DALIAN IRON ORE DCE DCIO MAY5 495 -4.00 -0.80

SGX IRON ORE FUTURES FEB 67.15 -0.38 -0.56

THE STEEL INDEX 62 PCT INDEX 67.9 -0.60 -0.88

METAL BULLETIN INDEX 68.74 -1.56 -2.22

 

Dalian iron ore and Shanghai rebar in yuan/tonne

Index in dollars/tonne, show close for the previous trading day

($1 = 6.1950 Chinese yuan)

Source: Reuters

Zhejiang Yaang Pipe Industry Co., Limited

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