Iron ore plunges with severe weekly loss affecting this year's gains

Iron ore spot markets slumped yet again on Friday, dropping by a margin of nearly 8 percent this week. With this, the loss shrunk this year's gain to 7.8 percent.

As noted by Metal Bulletin, the spot price for benchmark 62 percent fines fell by 1.5 percent to reach US$85.06 (AU$111.63) a tonne. This came in contrast to the 1.6 percent increase that was witnessed the day before. Higher and lower grade ores also suffered a downfall, but by a smaller difference.

As Chinese futures continued to downslide overnight, there is a growing speculation that the effect on spot markets may be prevalent on Monday. On Friday, most actively traded iron ore contract on the Dalian Commodities Exchange for September 2017 fell by 2.33 percent to settle at 566.5 yuan (AU$107.87).

This is the lowest number recorded since earlier this year. The fall was also seen as rebar futures traded on the Shanghai Futures Exchange declined by 1.22 percent to reach 3,167 yuan (AU$603.06).

With futures in China recording a substantial weekly loss, the most-active contract in Singapore fell for the sixth consecutive day. Spot prices suffered the highest fall plunge since November. “It’s an overdue correction in prices, which have risen too much,” Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co, said. He added that the slump comes in spite of a positive forecast. “Fundamentals for iron ore remain very strong at present,” he said.

SGX AsiaClear futures, in Singapore, posted their fourth weekly loss of about 9 percent in the last five weeks. Several other banks and producers have hinted the possibility of risks. Barclays PLC warned last week the prices could plunge to as low as US$50 (AU$65.62) in the second half of this year. This comes amid a forecast of decline of mills’ profitability, which would in turn push producers to move their consumption towards lower-grade ores.

Last year, iron ore gave an impressive performance on the back of high demand. The gains, which extended into 2017, were welcomed by mining giants including Vale SA, BHP Billiton and Rio Tinto – with China buying substantial volumes.

However, there are concerns that the increase in demand may not last for a long time and that China’s steel demand may dwindle. Nevertheless, imports by the top buyer are forecast to reach recorded levels this month. With nearly 100 million tonnes, high volumes of imports are expected to persist as we enter the next month, according to Leszczynski. “I don’t think this is the big sell-off yet,” Tomas Gutierrez, an analyst at Kallanish Commodities, said.