Shares in the world’s biggest iron ore producers were plummeting Wednesday as seaborne prices dropped again to below $90 a tonne, amid growing doubts about the strength of Chinese demand and record port stockpiles.
The spot price for benchmark 62% fines fell by a further 3% to 84.99 a tonne, according to Metal Bulletin Index, extending the drop over the past four sessions to 8.2%. Iron ore prices now sit at their lowest level since February 9.
The losses for lower grade ore were even larger with the price for 58% fines slumping by 5.4% to $58.28 a tonne.
In China, futures contract for one tonne of iron ore for September delivery on the Dalian Commodity Exchange descended into a bear market, falling as much as 6.1% in morning trading and marking a new low for March.
Steel in Shanghai also underperformed — it logged Wednesday the longest run of declines this year, while the SGX AsiaClear contract in Singapore fell for a fourth day.
Producers felt the impact of the drop. Shares in Vale (NYSE:VALE), the world’s No.1 iron ore producer, were slightly down in pre-market (-0.95% to $9.35). Rio Tinto’s stock (ASX, LON:RIO), the second-largest global supplier, closed down 2.6% in Sydney to A$60 and it was trading 1.62% lower in London at 3,274p. BHP Billiton (ASX:BHP), in turn, closed down 2.92% in Australia to A$23.92
“The iron ore market slumped further today as recent support for elevated prices gave way to further downwards pressure,” analysts at the Metal Bulletin wrote. “Downwards momentum across the grade boundaries has accelerated since the start of the week.”
They added that rebar futures fell close to its daily lower limit during the day, which led to pessimism growing in the spot market.
But for some, the iron ore price volatility is due mostly to increased speculative activity in futures markets.
“A lot of speculative players in the paper market create volatility in the price and this volatility has affected the physical market,” an anonymous Shangai-based trader told Reuters.
“Fundamentals have not changed so much. Seasonal demand is still happening because the temperature in most areas in China is warm enough for construction projects to proceed.”
Analysts as well as Australia’s central bank and even some miners have long warned the steel-making ingredient’s rally is not sustainable. They have said that fresh supply coming from recently opened mines, such as Roy Hill in Australia, as well as Anglo American’s Minas Rio and Vale’s S11D in Brazil, would tip the balance, with output surpassing demand and dragging prices down.