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COLUMN-Iron ore price slump brings risk of downside overshoot: Russell

Date 10/12/2017 5:23:38 PM Source: Reuters

   LAUNCESTON, Australia, Oct 12 (Reuters) - With spot Asian iron ore having fallen back below $60 a tonne, the price of the steelmaking ingredient appears to be heading toward a level more in line with supply and demand fundamentals.

    However, as usual the risk when a rally reverses as quickly as the current decline in iron ore is that prices overshoot to the downside.

    The Asian spot price  .IO62-CNO=MB  fell to $59.65 a tonne on Wednesday, the lowest level in 3-1/2 months and a drop of 25 percent since the recent peak of $79.65 in late August.

    Iron ore is now well below the $78.87 it fetched at the end of 2016, and it is proving to be a volatile year, with two strong rallies being followed by sharp reversals.

    Both the surge to the 2017-high of $94.86 a tonne in late February and the August-peak were driven by optimism over robust steel output in China, which buys about two-thirds of global

seaborne iron ore shipments.

    The latest drop in iron ore prices has come as some of the optimism over Chinese steel production and demand fades, especially in the light of ongoing mill closures as part of efforts to improve air quality ahead of the major conference of the ruling Communist Party, which starts on Oct. 18.

    While prices have been volatile, China's import demand has been remarkably stable.

    Imports for the first eight months of the year were 714 million tonnes, a gain of 6.7 percent from the same period last year, according to customs data.

    While official numbers for September are yet to be released, vessel-tracking and port data compiled by Thomson Reuters suggest another steady month.

    Seaborne iron ore imports were 87.2 million tonnes in September, slightly down from August's 88.6 million, according to the data.

    The vessel-tracking data and the customs numbers don't tally exactly, given differences as to when cargoes are assessed as having been cleared. The ship data also doesn't account for imports that arrive via rail or truck from countries such as Mongolia.

    There is the risk that iron ore imports may be somewhat lower in the last quarter of this year, given the expected closure of steel mills and China's ample port inventories, which rose to 133.8 million tonnes in the week to Oct. 6.

    Inventories  SH-TOT-IRONINV  are lower than the record 141.4 million tonnes, reached in late June, but they are also well above the 114 million tonnes recorded at the end of 2016.

If iron ore demand is curtailed by curbs on steel production in the next few months, it should result in lower imports or a further build-up of port stocks, both of which should be bearish for prices.

 

 

Edited by SHMET