News Room - Steel Industry

Iron ore prices plunged to six-year lows today as contagion from China’s stocks rout hurt commodity markets, with resource-heavy economies like Australia and Brazil bearing the brunt.

The spot price of the commodity took its biggest one-day hit ever overnight, falling 10% to US$44.59 a tonne, analysts said, as demand in key market China continues to shrink. Prices were last at this point in May 2009.

At that level, most Australian miners would be producing at a loss, with the exception of low-cost giants like Rio Tinto and BHP Billiton.

“You’ve had the perfect storm in terms of globally rising risk premiums and at the same time expectations of China’s (economic) recovery are being pushed out,” CLSA’s head of resources research Andrew Driscoll told AFP. “It means all commodity markets have faced heavy selling, but particularly those markets where there’s no shortage of supply and iron ore is a good example of that.”

The sharp drop in the iron ore price saw the commodity record its worst trading day on record, IG Markets strategist Evan Lucas said in a note.

He added that the price of steel - of which iron ore is a key ingredient - in China was so weak it was “now cheaper per tonne than cabbage”.

While copper jumped as the US dollar slipped, oil prices were also on the slide, with US benchmark West Texas Intermediate falling 68 cents to US$51.65 a barrel on Wednesday, its fifth day of losses.

Many agricultural commodity prices were also weaker, including cotton and wheat.

The slump in iron ore and other commodities comes as China’s share market struggles to bounce back from its free fall this week, even in the face of Beijing’s efforts to calm investors. China has suspended trading in more than half of the country’s listed stocks, banned new listings, is probing “vicious short-selling” and enlisted the help of the country’s major stockbrokers through a huge stabilisation fund.

The nation’s wildly volatile stocks ventured into positive territory today after days of bleeding.

ANZ analysts also linked the commodity pressure to the Chinese market, and noted that “while there are some signs of prices stabilising, any sustained recovery in commodity markets is unlikely in the short term”.

Iron ore is Australia’s largest export and government revenue has taken a hit as the price dives.

The ore price had already been declining in recent months on the back of increased supply by miners such as BHP and Rio, as well as softer growth in Chinese demand.

Australia’s iron ore exports were forecast to increase by 4% this year to 748 tonnes as suppliers ramp up output from the Pilbara in Western Australia, the nation’s Department of Industry and Science said in a quarterly report last month.

Supply is also expected to be boosted by initial production from Hancock Prospecting’s massive Roy Hill mine.

At the same time, Brazil’s iron ore exports were forecast to rise by 7% this year to 390 tonnes on the back of infrastructure expansions and increased production, the report said.

The department lowered its forecast for iron ore prices to US$54.40 a tonne for this year and US$52.10 in 2016 as China’s output of steel weakens.

“Without some positive (Chinese) economic growth to indicate some strong underlying demand, or material supply disruptions, it’s difficult to see what the near-term positive catalysts are going to be,” Bell Potter’s senior resources analyst David Coates told AFP.

“It’s definitely going to make life tough, particularly for the junior (miners),” he said. “Iron ore just seems very well supplied and demand looks vulnerable.”