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Iron Ore Drops Below $70 for First Time Since ’09 as Glut Widens

Bloomberg
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November 25, 2014

By Chanyaporn Chanjaroen

Nov. 25 (Bloomberg) — Iron ore traded below $70 for the first time in five years as rising low-cost supplies by the world’s top miners widen a global glut amid slowing demand from China, the biggest user.

Ore with 62 percent content delivered to Qingdao fell 1.2 percent to $69.58 a dry metric ton today, the lowest since June 2009, data from Metal Bulletin Ltd. showed. Prices are heading for a 13 percent loss this month, the most since May.

Iron ore slumped 48 percent this year as surging output from Rio Tinto Group, BHP Billiton Ltd. and Vale SA, the three largest miners, spurred a glut. China’s central bank unexpectedly cut interest rates last week for the first time since 2012 to stimulate the economy forecast to record the weakest annual pace in more than two decades.

“The biggest problem is on the supply side as majors like BHP and Rio are pushing huge volumes into the lackluster demand environment,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said this week. “To me $65 feels like a floor.”

The global seaborne market needs to absorb a surplus of about 110 million tons next year, almost double the 60 million tons expected in 2014, according to Goldman Sachs Group Inc. The bank declared the “end of the Iron Age” in a September report as a Chinese-led demand surge over the past decade that had brought record profits for producers came to an end.

China cut the one-year deposit rate by 0.25 percentage point to 2.75 percent, while the one-year lending rate was reduced by 0.4 percentage points to 5.6 percent, effective from Nov. 22, the People’s Bank of China said Nov. 21.

‘Decent Business’

It would take three to six months before the effect of the rate cut to feed through the economy, Sanford’s Gait said.

“At these prices, we still have a very decent business,” BHP Chief Executive Officer Andrew Mackenzie said Nov. 20, adding that the time for massive expansions of iron ore are over. “We’ve been fairly clear that prices at about these levels were what we were expecting for the longer term.”

The market has hit bottom and prices may rebound, Standard Chartered Plc said in a Nov. 3 report. Prices will rise again over time, Rio Tinto Chief Executive Officer Sam Walsh told Sky News Television on Nov. 13. In the long term, the market won’t be oversupplied all the time, Vale said Nov. 7.

Copyright 2014 Bloomberg.

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