Iron ore futures in Asia dropped sharply on Tuesday, after a frenzied rally over the past week to multi-year highs, as weaker Chinese steel prices tamed bullish bets on the raw material. Some analysts say the rally in iron ore that saw the benchmark spot price soaring 23 percent last week - its biggest such gain ever - may have been driven more by speculative play.
At nearly 108 million tonnes, stocks of iron ore at Chinese ports remain close to a two-year high, while coal supply in the country was limited amid shuttered mines. Copper inventory on London Metal Exchange warehouses has dropped to their lowest since August. "We understand the moves in metallurgical coal and copper given inventory levels, but we believe iron ore is simply being pulled up with the whole commodity complex," Clarksons Platou Securities analyst Jeremy Sussman said in a note.
The most-traded January iron ore on the Dalian Commodity Exchange closed down 6 percent at the exchange-set floor of 591 yuan ($86) a tonne, after hitting a 33-month high of 656.50 yuan on Monday. On the Singapore Exchange, January iron ore dived 8.2 percent to $68.50 a tonne. Activity in the physical iron ore market was limited, traders said, after recent deals that lifted the benchmark spot price to a more than two-year high at near $80 a tonne. Iron ore for delivery to China's Tianjin port was unchanged at $79.70 a tonne on Monday, according to The Steel Index. Traders say the spot benchmark could drop on Tuesday following a slide in futures markets. Chinese spot steel prices also retreated along with futures, traders said.
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