Iron ore sinks to four-month low on demand outlook in China

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(Bloomberg) -- Iron ore lurched to a four-month low on concern China’s falling steel production will erode demand and boost stockpiles.

Ore with 62 percent content delivered to Qingdao sank 45 percent to $45.58 a dry metric ton on Tuesday, the lowest since the record on July 8, according to Metal Bulletin Ltd. The price bottomed at $44.59 for daily price data dating back to May 2009.

The global iron ore market faces little buying interest seen in China, Australia & New Zealand Banking Group Ltd. said on Tuesday before the price data. Iron ore breached $50 last month amid concern a global glut will swell as the largest miners including BHP Billiton Ltd. and Vale SA expand output just while mills in China cut steel output. Production of steel shrank again in October, official data show, and commodity trader Noble Group Ltd. has forecast further declines are highly probable.

“Prices are still under pressure due to oversupply,” Michael Zhu, president of Hong Kong-based trader Millennia Resources Ltd., said before the data on Tuesday. “There is hardly any Chinese steel mill making profit now, so the demand will be weak through year-end,” said Zhu, a former global sales director of Vale.


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Iron ore’s losses come as commodities faced renewed pressure on Tuesday, with copper sliding to a multi-year low. Iron ore may test the $40 level before year-end as demand faces challenges from steel-output cuts, mainly in China, according to Standard Chartered Plc.

Steel consumption in China is weakening for the first time in a generation, driving local prices to a record low. More blast furnaces in China are expected to close by the end of the year, adding more pressure on iron ore prices, Macquarie Group Ltd. said in a Nov. 16 report, citing “extremely weak” industry sentiment from its proprietary China steel survey.

Alan Chirgwin, BHP’s vice president of iron ore marketing, has forecast that prices will extend their decline for years before finding a level well below $50 at the highest break-even of a top miner.

Port inventories of ore have expanded for the past five weeks to the highest level since May. Holdings rose 0.6 percent to 86.55 million tons last week, according to Shanghai Steelhome Information Technology Co. Crude-steel output shrank 3.1 percent to 66.12 million tons in October from a year earlier, according to the statistics bureau.

The dollar has rallied this year to the highest since at least 2005 on prospects for an interest rate increase, which makes commodities priced in the greenback more expensive for holders of other currencies. The Bloomberg Dollar Spot Index gained as much as 0.2 percent on Tuesday, rising for a third day.