Iron ore is headed for a fifth consecutive week of losses after hitting another five-year low, weighed down by plentiful supply and a weaker steel market in top importer China. The steelmaking raw material - China's top commodity import by volume and the biggest money-maker for global miners Vale and Rio Tinto - has slumped almost 40 percent this year as miners boosted output but Chinese demand slowed.
Iron ore for immediate delivery to China's Tianjin port dropped 0.4 percent to $81.90 on Thursday, its lowest since September 2009, according to data provider Steel Index. The commodity has fallen 2 percent so far this week, putting its cumulative loss for the past five weeks to more than 14 percent.
But low-cost supplies could force smaller producers with their higher costs out of business, helping tighten supply and leading to a rebound in the price to perhaps $95 a tonne towards the end of the year, said Matt Fusarelli, an analyst at AME Group in Sydney. "I would argue that the market has overshot on the downside and we're seeing a rebalancing," said Fusarelli. "Even though the market is in a structural oversupply, we still believe that there's going to be some improvement in prices in the fourth quarter," he said.
The 2 percent drop in the benchmark spot price this week is a slower rate of decline than last week's 4.9 percent. Firmer iron ore futures in China and Singapore suggest spot prices may regain some footing on Friday. The January iron ore contract on the Dalian Commodity Exchange rose 1 percent to close at 591 yuan ($96) a tonne, after touching a contract low of 570 yuan on Wednesday. The October iron ore contract on the Singapore Exchange gained 0.6 percent to $82.63 a tonne.
RESTOCKING However, many smaller Chinese steel mills have been keeping low stocks of iron ore, reckoning prices could slip further. "Most of the small and medium-sized mills are opting for a week to 10 days of stocks because the expectation is that prices could come down some more. Demand for steel products is really weak," said an iron ore trader in China's eastern Shandong province.
But Chinese buyers are likely to replenish iron ore stocks aggressively once the signals point to a pick-up in prices, said Fusarelli. "Often the restocking cycle is super-cyclical. If people expect prices to go up for a while, that would bring forth purchasing," he said. China's cooling property sector has been a major drag on the overall economy and has helped fuel the slide in steel prices, with Shanghai rebar steel futures hitting a series of record lows from mid-August. The most traded rebar for January delivery on the Shanghai Futures Exchange closed up 0.9 percent at 2,790 yuan a tonne. But the contract marked its fifth straight weekly fall, having touched a record low of 2,725 yuan on Wednesday.
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