from AFR
Iron ore rout far from over: Chinese fund manager
PUBLISHED: 1 hour 56 MINUTES AGO | UPDATE: 1 hour 40 MINUTES AGO
Phoebe Sedgman and Feiwen Rong
Iron ore capped a fifth straight weekly drop with prices trading near the lowest since 2009 on concern that slowing growth in China will hurt demand just as rising low-cost supplies spur a global surplus.
Ore with 62 per cent content delivered to Qingdao lost 6.8 per cent this week, dropping to $US70.20 on November 19, the lowest level since June 2009, data from Metal Bulletin Ltd. showed. The price retreated 0.9 per cent to $US70.31 a dry ton on Friday.
Iron ore collapsed this year as surging low-cost output from Rio Tinto Group in Australia and Vale in Brazil spurred the glut. Data from Asia’s largest economy this week showed a drop in new-home prices and rising bad loans. The slump bears out a September forecast from Tom Albanese, former head of Rio Tinto, who said prices would remain weak for a sustained period as supply exceeded demand and China’s economy was slowing.
“The worst is yet to come,” Liang Ruian, a fund manager at Shanghai-based Jianfeng Asset Management, said in an interview. “Not only will we see increased supply from Brazil and Australia, also there’s an element of collapsing demand which hasn’t been reflected in the price yet.”
New-home prices dropped in all but one city tracked by the government in October from the month before, according to the National Bureau of Statistics. Construction accounts for about 50 per cent of China’s steel demand, Commonwealth Bank of Australia estimates, and the country is the largest ore buyer.
China on Friday cut benchmark interest rates for the first time since July 2012 as leaders step up support for the world’s second- largest economy. The one-year deposit rate was lowered by 0.25 percentage point to 2.75 per cent, while the one-year lending rate was reduced by 0.4 percentage points to 5.6 per cent, the People’s Bank of China said.
Vanishing demand for commercial space
Iron ore at “$US70 is not a bottom and I’m not even sure it can stand above $US50 next year,” Liang said in Nanjing, China, where he’s attending an iron ore conference. “What people haven’t realised is the vanishing demand for commercial real estate here,” he said.
The market has hit bottom and prices may rebound, Standard Chartered said in a November 3 report. Prices will rise again over time, Rio Tinto boss Sam Walsh told Sky News Television on November 13. In the long term, the market won’t be oversupplied all the time, Vale said November 7.
High-cost iron ore producers faced a “pain point” at about $US80 a ton, Albanese, chief executive officer of London- based Vedanta Resources, told Bloomberg on September 29. While low-cost producers would still make good money, higher-cost mines faced closure over time, he said.
Cliffs Natural Resources the top US producer, said this week it is considering closing a mine in Canada as an expansion isn’t viable. Kumba Iron Ore, which owns Africa’s biggest mine, said yesterday it’s reviewing its product portfolio and spending as prices are lower than expected.
“At these prices, we still have a very decent business, BHP chief executive officer Andrew Mackenzie told reporters on Friday, adding that the time for massive expansions of iron ore are over. ‘‘We’ve been fairly clear that prices at about these levels were what we were expecting for the longer term.’’
Bloomberg
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