Last updated: May 19, 2014 6:02 pm

Iron ore below $100 on China demand worry

Iron ore fell below $100 a tonne for the first time since September 2012 on concerns over reduced demand in China.

Benchmark 62 per cent iron ore, as assessed by the Steel Index, fell 2.2 per cent to $98.50 on Monday.

July iron ore futures on the Singapore Exchange dropped 1.3 per cent to $97.75, the lowest level in over a year.

Iron ore is crucial to the profit of big mining companies such as Rio Tinto, Vale and BHP Billiton. The vast majority of the commodity is used in the steelmaking process, for which it is the main raw ingredient.

At present, China consumes two-thirds of the world’s seaborne iron ore. Since 2000, demand for the commodity has doubled due to increased steel production in the world’s most populous country, according to Bernstein Research.

More recently, concerns over excess supply, the use of ore as collateral in financial deals and a gradual slowing of economic growth in China have helped to drive the price of iron ore down to 20-month lows.

“China is transitioning from a fixed asset investment economy to a consumer-driven economy, and that has a major psychological effect on the market,” said Ignace Proot, an analyst at Bernstein Research. “That transition is negative for steel and iron ore, but could be positive for other commodities such as zinc and copper,” he added.

The benchmark price for iron ore has fallen sharply from a recent peak of just under $120 on April 9. Over the past month, the price has fallen 11.4 per cent.

Analysts are lowering their short-term estimates for the iron ore price. Last week Macquarie revised its forecast for the average price of iron ore in the third quarter down to $100, from $110 previously.

Melinda Moore, an analyst at Standard Bank, suggested that small miners in China, where costs are often higher, would be significantly affected by further downward price movement.

“If the price of iron ore continues to fall, more miners around the world, and especially in China, will have to review their options and possibly shut down,” she said.

“We believe up to 150m tonnes of high-cost Chinese finished production has been turned off already or is in the process of being turned off,” she added.

In other commodities, platinum rose 1.5 per cent to $1,479.99 an ounce as the longest miners’ strike in South African history continued. Nickel’s recently volatility continued, with prices jumping 6 per cent to $20,110 a tonne.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.


Sign up for email briefings to stay up to date on topics you are interested in