November 26, 2012 6:04 pm
Iron ore falls to one-month low
By Javier Blas in London
Iron ore prices fell to a one-month low on Monday as buying from Chinese steelmakers declined, an early sign that the rally that propelled the commodity 35 per cent higher over the past three months is starting to fade.
The benchmark for iron ore delivered to China – with 62 per cent iron content – fell to $119.5 a tonne, according to price reporting agency Platts, down 25 cents on the day. Iron ore prices have fallen nearly 4 per cent in the past two weeks.
“With little new news to generate trading momentum, the mood continues to fade,” said Melinda Moore, bulk commodities analyst at Standard Bank in London.
But the cost of the commodity, used to produce steel, remains well above the three-year low of $89 a tonne set in early September.
The recovery from the three-year low, which set a de facto price of around $90-$100 a tonne, was critical for the profitability of large mining groups, including Vale of Brazil, Rio Tinto, BHP Billiton and Anglo American, and Japanese trading companies such as Mitsui & Co.
The price of the commodity is also crucial for the world’s largest steelmakers, including ArcelorMittal and Baosteel Group of China. With many producers complaining about weak demand, the current rally appears to have now set a de facto ceiling of around $120-$125 a tonne.
Iron ore traders and brokers highlighted that cold weather in China, which could limit construction activity, was weighing on the iron ore market. Chinese steel futures prices have drifted down recently, reflecting weaker demand.
The most traded steel rebar contract for May delivery on the Shanghai Futures Exchange touched a session low of 3,543 yuan ($570) a tonne, not far off last week’s two-month low of 3,533 yuan, according to Reuters.
The last tenders from iron ore miners, including Vale of Brazil, had received a lacklustre reception, suggesting steelmakers and iron ore traders are taking a step back amid fears that weak demand for steel will lead to a build-up in inventories.
Earlier this year, slow demand from the crucial Chinese construction sector led to a big increase in stocks of both steel and iron ore, which later triggered a sharp price correction for both commodities.
Iron ore prices fell roughly 40 per cent between early April and late August, dropping from $150 to $90 a tonne.
The market will pay attention this week to Rio Tinto, the world’s second largest iron ore miner, which is hosting a seminar in Sydney about the commodity.
Rob Clifford, mining analyst at Deutsche Bank in London, said Rio Tinto was likely to confirm its expansion project in the Pilbara region of Western Australia but also acknowledge a 5-10 per cent cost overrun due to the “strong Australian dollar”.