Iron ore awakens to hangover as stockpiles surge

For iron ore it is the morning after the night before. Prices have given up most of the gains inspired by Donald Trump’s surprise win and a speculative frenzy in China, with a surge in port stockpiles in the top user reminding investors that fundamentals still count.

“The speed of the recent rally leaves it open to the charge that price action has been too much, too fast,” Dane Davis, an analyst at Barclays Plc in New York, said in a note that asked “After the party.... the hangover?” The balance of risk for iron as well as copper is skewed to the downside as the dollar strengthens and the effects of Trump’s win wear off, according to Davis. Iron ore barreled to a two-year high this month as investors celebrated Trump’s victory on the outlook for infrastructure spending at the same time commodities futures volumes surged in China. The rally has reversed after mainland exchanges raised charges to quell the fervour, and the US currency rose on prospects for higher interest rates. The port data have added to the bearish mix, reinforcing signs of ample supply, and come as mining giant Rio Tinto Group cut jobs across West Australia, citing a challenging outlook.

“As it did earlier this year, China has cracked down on speculation in the iron ore market,” Davis said. “With these stricter standards in place, the iron ore price should continue to ease off recent highs, though it may find support from continued highs in other steel raw materials, such as met coal, and a domestic steel market that looks to set to grow production in 2016.” Bloomberg