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Weak China steel outlook topples iron ore

Published 13/04/2017, 05:40 pm
© Reuters.  Weak China steel outlook topples iron ore
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* Physical, futures prices sink

* China trade data shows supply building

* Australian iron ore miners retreat

By James Regan

SYDNEY, April 13 (Reuters) - Chinese iron ore futures nosedived to a three-month low on Thursday, reacting to dramatic falls in the physical spot market as the demand outlook continues to deteriorate.

At the same time, fresh Chinese trade data has revealed that a relentless influx of imported ore continues to flood Chinese ports, where inventories SH-TOT-IRONINV have ballooned to more than 130 million tonnes.

Iron ore miners in Australia, until recently basking in a bull market, are watching their shares plummet as ore prices retreat at lightening pace.

"Iron ore miners are firmly on the back foot," said MineLife analyst Gavin Wendt. "All of a sudden, iron ore is out of favour, we have seen some dramatic drops."

Overnight iron ore for delivery to China's Qingdao port collapsed by 8.5 percent to its lowest since last November.

The Metal Bulletin 62 percent fines price .IO62-CNO=MB retreated $6.34 to $68.04 per tonne, marking the biggest one-day percentage decline in 13 months. Spot ore has now lost 16.5 percent of its value in the past five sessions.

Nev Power, chief executive of the world's fourth-biggest producer Fortescue Metals Group FMG.AX , whose shares toppled more than 8 percent FMG.AX , predicted the rout is far from over.

MORE SUPPLY

"We have seen the follow-through on new supply coming on to the market in seaborne iron ore, and there is still more supply to come, which will replace higher cost (Chinese) production," Power told reporters on a call.

"What we will see is the iron ore price return to somewhere around $60-$65 a tonne," That's a steep drop from the $94 iron ore fetched in February.

Fortescue is getting a double whammy, with steel mills favouring imports of higher grades' ore than it can mine, leaving its average sales 24 percent below those of rivals BHP Billiton (LON:BLT) BHP.AX and Rio Tinto RIO.AX RIO.L .

That alone could lead to a 5-10 percent revision in Fortescue's fiscal 2017 earnings, according to Shaw and Partners analyst Peter O'Connor.

But Rio and BHP were also sold off, each recoiling by 4 percent.

IRON ORE DOMINATES

Iron ore on the Dalian Commodity Exchange DCIOcv1 recoiled by 1 percent to 505.50 yuan($73), the lowest since Jan 10.

"There has been a lot of speculation in the Chinese futures market and now prices are going down," said Helen Lau, an analyst at Argonaut Securities. "Iron ore is following steel lower."

The price collapse signals the end to the upward momentum caused by China's stimulus spending and policy changes - including coal mine and steel mill shutdowns that had more than doubled spot prices in a little more than a year.

First quarter iron ore imports grew 12 percent to 271 million tonnes, a quarterly record, Chinese customs data showed. on the Shanghai Futures Exchange SRBcv1 ended lower by half percent at 2,917 yuan, the lowest in more than two months.

($1 = 6.8819 Chinese yuan)

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