steel production

Iron Ore Declines to 2009-Low as Steel Mills Seen Cutting Output

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January 22, 2015

By Jasmine Ng

(Bloomberg) — Iron ore declined to the lowest level in more than five years amid speculation that mills in China will reduce steel output in the runup to a holiday next month, curbing demand from the biggest user and worsening a glut.

Ore with 62 percent content delivered to Qingdao, China, dropped 1.5 percent to $66.79 a dry metric ton, the lowest level since June 2, 2009, according to Metal Bulletin Ltd. Prices are headed for a third consecutive weekly loss.

The commodity sank 47 percent last year as BHP Billiton Ltd., Rio Tinto Group and Vale SA raised low-cost output in Australia and Brazil, spurring a surplus. While China’s economy expanded 7.4 percent last year, in line with Premier Li Keqiang’s target, that’s the slowest pace since 1990, according to data released this week. Steel production in the world’s largest producer grew at the slowest rate on record in 2014 amid a slowdown in the country’s property market.

“It appears some of the steel mills have closed or slowed down production ahead of the Lunar New Year,” Kelly Teoh, an iron ore derivatives broker at Clarkson Plc in Singapore, said. “The weakness in the iron ore prices will always be there due to the fundamental reason of an oversupplied market.”

The Lunar New Year break starts Feb. 18 and ends Feb. 24. Factories in the world’s second-largest economy either suspend operations or curb hours.

Steel Production

Crude-steel production expanded 0.9 percent in 2014, compared with 7.5 percent the previous year, according to data from China’s National Bureau of Statistics this week. That was the lowest growth in output in data going back 24 years.

The biggest miners are still expanding output. BHP produced 56.4 million tons in the three months to Dec. 31, 16 percent more than a year earlier, the Melbourne-based company said Wednesday, keeping a target for 225 million tons in fiscal 2015. Rio plans to boost output to 330 million tons this year after an 11 percent rise to 295 million tons in 2014, it said on Tuesday.

The global iron ore surplus will swell from 35 million tons this year to more than 200 million tons by 2018, according to UBS Group AG. Prices will average $66 a ton this year, 22 percent less than previously forecast, and $65 in 2016, down 21 percent, UBS said in a report this month.

(c) 2015 Bloomberg.

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