Iron-ore seen at $80 long term as China steel output growth slows - CISA

www.miningweekly.com/
By: Reuters
22nd September 2014

MELBOURNE – Chinese steel and iron-ore futures slid 4% to their lowest on record on Monday, plagued by worries about excess supply at a time when demand for both in the world's top consumer is growing at a slower pace.

Losses in commodities were broad-based, with oil and copper also taking a hit and raw materials traded in China hammered amid worries that a manufacturing survey due on Tuesday may add to evidence of a slowdown in the world's second-biggest economy. Chinese equities fell nearly 2%.

China's Finance Minister, Lou Jiwei, said on Sunday the government would not dramatically alter its economic policy because of any one economic indicator.

Abundant supply has pushed spot iron ore prices down by nearly 40% this year to the lowest since 2009 and last week they marked their sixth consecutive weekly loss.

Iron-ore for January delivery on the Dalian Commodity Exchange fell 4% to close at 556 yuan ($91) a tonne, the lowest for the contract since the bourse launched iron ore futures in October last year.

The most traded January rebar contract on the Shanghai Futures Exchange also fell 4% to end at 2 619 yuan per tonne, the lowest for a most active contract since the exchange introduced rebar in 2009.

Both levels were the downside limits for the day for iron ore and rebar futures.

"Fundamentally, both the iron ore and steel markets are oversupplied and I don't see any support for prices right now," said an iron ore trader in Shanghai.

Other commodities traded in China slumped, with rubber falling by its 5% limit and cotton dropping nearly 4% at one point. Shanghai-traded base metals also slumped, with zinc down 2.4%.

China's factory output grew at its weakest pace in nearly six years in August, prompting some economists to trim their 2014 growth forecasts for the country.

The supply glut dragged spot iron ore prices to a five-year low on Friday, with the benchmark 62 percent grade iron-ore falling 1.6% to $81.70 a tonne, its lowest since September 2009, according to data compiled by Steel Index.

"Chinese steel mills offering to sell long-term cargoes into the spot market have further exacerbated the problem of excess near-term supply," Australia and New Zealand Banking Group analysts said in a note to clients.

Chinese steel producers have been cutting back on long-term iron ore contracts in favour of cheaper spot cargoes, confident that beaten-down prices are unlikely to rebound amid the first global ore surplus in 10 years.

Li Xinchuang, deputy secretary general of the China Iron and Steel Association, told a mining conference in Melbourne he expected iron ore to trade at around $80 a tonne in the long term amid limited growth in China's steel output.

Singapore iron-ore futures also fell. The October contract dropped 1.9% to a contract low of $79.48 a tonne.

Edited by: Reuters