In Commodity News 31/07/2015
Iron ore’s rallied into bull-market territory for the second time this year. The principal concern for mining companies including Fortescue Metals Group Ltd., Rio Tinto Group and their investors is whether it’ll stay there.
“We don’t think the rally is going to run too far,” Xiao Fu, head of commodity strategy at Bank of China International in London, said after prices gained more than 20 percent from a low on July 8 to $55.89 a dry metric ton on Wednesday. There could be some stabilization between current levels and about $60, Fu said. Prices dropped 0.4 percent on Thursday.
The commodity’s been on a roller-coaster ride in 2015, sinking to a six-year low in April on rising low-cost supply and stalling demand growth in China, before rebounding into a bull market the same month. That advance proved to be fleeting, with a new low seen at the start of July amid forecasts from bank’s including Citigroup Inc. that it may tumble below $40 a ton this half. Supplies are still plentiful, according to Fu.
“To say that iron ore prices could fall to Armageddon levels is really saying the world doesn’t need an iron ore industry,” Fortescue Chairman Andrew Forrest told reporters in Sydney on Thursday. “That’s about as extraordinary as saying the world doesn’t need a food or energy industry.”
Ore with 62 percent content delivered to Qingdao fell to $55.64 on Thursday, after rallying 4.6 percent on Wednesday, according to Metal Bulletin Ltd. While the gain of more than 20 percent from the July low to Wednesday met the common bull-market definition, prices are 22 percent lower in 2015.
‘Bouncing Back’
“Iron ore was oversold and now you have prices bouncing back,” said Fu, who correctly warned in mid-May that gains seen that month wouldn’t endure. “For the second half, we’re still a bit cautious for base metals and bulks in general.”
Rio climbed 2.4 percent to close at A$53 in Sydney, trimming losses this year to 8.6 percent. BHP Billiton Ltd. is 4.9 percent higher this week, the biggest gain since April, while Fortescue added 14 percent since last Friday’s close. The three are Australia’s top shippers.
Iron ore’s latest rally stands out amid losses in raw materials tracked by the Bloomberg Commodity Index, which is headed for the biggest monthly decline since September 2011. Oil in New York entered a bear market last week, while copper in London fell to a six-year low on Monday.
Iron ore’s advances in July may have been spurred by mills stepping up buying just as cargoes from overseas missed expectations. The rise was supported by the speculation mills were purchasing ore from ports, against the seasonal trend, Australia & New Zealand Banking Group Ltd. said on Thursday.
Exports from Australia were disappointing this month as maintenance at some terminals may have affected the pace of shipments, Goldman Sachs Group Inc. said in a report on Monday. The bank has forecast lower quarterly prices into 2016.
“The rebound will be short-term and lower prices are expected, we still have an oversupply market,” Kelly Teoh, an iron ore derivatives broker at Clarkson Plc in Singapore, said on Wednesday before the price data. “It seemed there’s still some tightness in the physical spot cargoes.”
