Iron ore in free fall as port holdings expand

Iron ore's in free fall. Prices plummeted as port stockpiles in China expanded to the highest level in more than a year following moves by local authorities to quell frenzied speculation in raw-material futures.

Ore with 62 per cent content delivered to Qingdao tumbled 5.7 per cent to $54.99 a dry tonne, according to Metal Bulletin. Prices have slumped 22 per cent since peaking at more than $70 on April 21, and Monday's drop follows a 12 per cent loss last week, which was the most since 2011. Miners' shares fell, with Rio Tinto Group losing as much as much 5.2 per cent in London.

Iron ore is falling back to Earth after a dramatic surge of speculation in China had helped to hoist benchmark prices to the highest in 15 months. The mania prompted regulatory authorities and exchanges to team up to quell the excesses, while banks including Brazil's Itau Unibanco Holding SA warned the price gains weren't justified in an oversupplied market. Data on Friday showed port holdings have expanded to almost 100 million tonnes (mt).

 

"The recent price spike was well above the levels supported by market fundamentals," said Gerard Burg, senior Asia economist at National Australia Bank in Melbourne. "Stocks have been steadily rising, given the rebound in imports. This highlights again that the market isn't that strong, and the price spike was excessive."

Iron ore's slump on Monday was preceded by losses in Singapore and Dalian futures. The SGX AsiaClear contract for June settlement slid as much as 9.4 per cent and futures in Dalian dropped 7.1 per cent, retreating alongside contracts for steel reinforcement bar and coking coal.

Inventories held at ports across China increased 1.4 per cent to 99.85 mt last week to the highest since March 2015, according to data from Shanghai Steelhome Information Technology Co. The holdings, which supply the world's largest steel industry, have expanded 7.3 per cent this year.