Iron ore prices to fall back into the $30s — Citi

Iron ore prices to fall back into the $30s — Citi

Gina Rinehart's Roy Hill iron ore mine just began feeding a global oversupply that has dragged prices down to historic lows. (Image: Screenshot from a Roy Hill corporate video)

Iron ore’s short rally that saw prices climbing back up to $43.10 a tonne from a near decade low of $37 in early December not only is over, but experts are predicting a quick and painful fall back to the lows US$30s.

Citi's head of Asia commodity research, Ivan Szpakowski, is one of them. Noticias de Mineracao quotes (in Portuguese) him saying that China's worsening economic situation, and the resulting shake-out of high-cost miners and steel producers, will continue to drag the price down this year.

The early signs for 2016 are, indeed, not looking good. Iron ore stockpiles at Chinese ports, Bloomberg reported, are the highest in more than seven months, and there is no sign they’ll go down any time soon.

"Stockpiles have been on the rise because domestic demand is getting weaker and shipments from the major producers have increased," Dang Man, an analyst at Maike Futures in Xi'an, said last week. Mills have "been cutting production, which reduces demand for iron ore; so a lot of the stocks have remained at ports".

Holdings rose 0.8% to 93.1 million tonnes last week in the final reading of 2015, according to Shanghai Steelhome Information Technology. The inventories are at the highest since May 2015 and have continued to grow for four months.

Supply, or rather the excess of it, also continues to escalate. In December, Australia's 55mtpa Roy Hill mine started shipments. Rio Tinto's 20mtpa Silvergrass mine could be up and running within a year and Vale's gigantic 95mtpa S11D project could follow soon after.

Iron ore prices fell Thursday for a second consecutive session. According to Metal Bulletin, the spot price for benchmark 62% fines dropped by 0.46%, or 20 cents, to $42.91 a tonne.