Iron ore price hits 5½-year trough as Chinese mills curb output

on Jan 27, 2015

The price of iron ore has hit a fresh multiyear low as a sharp decline in steel prices and slowing demand from China, the world’s biggest consumer, continue to weigh on prices for the steel-making material. The commodity is also suffering downward pressure from increased supply as mining companies continue to increase output, boosting global stockpiles.

Yesterday, the price of iron ore with 62 percent iron content fell by 3.9 percent to $63.30 a dry metric ton at China’s Tianjin Port, according to data from Platts as cited by The Wall Street Journal. This makes for the lowest price on record dating back to May 2009 and is the biggest one-day drop since 18 November. The commodity has now fallen 11 percent since the beginning of the year.
Slowing demand in China has forced some steel mills to begin plant maintenance earlier than the usual maintenance period during the Chinese New Year, which falls on 19 February. Producers are looking to curb the oversupply that slashed nearly a third off prices last year. Reuters quoted Xu Huimin, analyst at Huatai Great Wall Futures in Shanghai, as saying that “steel mills have had to cut production as they have suffered losses as high as 200 yuan (£21) a tonne and the timing (for maintenance) was earlier than expected”.

At the Dalian Commodity Exchange, iron ore futures for May delivery settled 2.1 percent lower at 470 yuan (£49.92) per metric dry ton. The contract has now recorded a decline for a fourth straight session and its biggest intraday drop since 23 December.
An increase in output from Australia, the world’s top exporter of iron ore, is continuing to add to the glut of the raw material as the world’s biggest miners persist in expanding their production. Last week, BHP reported that it had produced 56.4 million tons in the last quarter of 2014, some 16 percent higher than in the prior-year period.
The Wall Street Journal cites an estimate by Capital Economics that Australia’s iron-ore output will grow by six percent y/y in 2015. According to that analysis, a “combination of a further increase in global iron-ore supply this year and only subdued demand growth suggests iron-ore prices will continue to drift lower”.

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