Iron ore’s surprise rebound toward $50 a metric ton may run out of steam as a further increase in global supplies and the closure of some steel producers in China will boost a global glut, according to the head of Australia’s largest steelmaker.
Prices are more likely to drop than rise, said Paul O’Malley, chief executive officer of BlueScope Steel Ltd. Almost all of China’s mills are losing money, which means that further production cuts are possible, he said on Monday.
The commodity bottomed at the lowest level in over six years in December as surging low-cost output from miners including Vale SA in Brazil, and Rio Tinto Group and BHP Billiton Ltd. in Australia coincided with shrinking steel consumption in China. Since then, prices have rebounded, capping the biggest gain since April last week, on a seasonal upswing in consumption after a break in the largest user and signs that the pace of miners’ supply growth may be easing off. Still, the uptick probably won’t endure, according to O’Malley.
Iron ore “is more likely to go down than to go up, both on the fact of increased supply coming on in the market and on the fact that the whole steel industry globally is struggling to make money,” O’Malley said on a conference call with reporters after the company reported a 47 percent rise in underlying first-half net profit. “More mills will close down.”
Ore with 62 percent content advanced 2.9 percent to $48.52 a dry ton on Friday, the highest level since Nov. 11, according to Metal Bulletin Ltd. The commodity -- which tumbled to $38.30 on Dec. 11, the lowest for daily prices dating back to May 2009 -- jumped 11 percent last week.