Iron ore price plunges to 6-week low, producers hammered

Build it and they may not come

Benchmark iron ore fell heavily again on Monday, bringing the decline in the price of the steelmaking raw material for April to almost 8%.

According to data from the The Steel Index, the import price of 62% iron ore fines at China’s Tianjin port was pegged at $108.60 per tonne on Monday, down more than 2.2% on the day as the market digested data showing stockpiles at the country’s ports jumping to a new record.

Inventories have surged 25% so far this year and now sit at just under 110 million tonnes. As much of 40% of this ore is estimated to be tied up as collateral in short-term financing deals which could mean more ore is dumped on the market once these loans are called in.

China buys more than two-thirds of the world’s seaborne ore and forges as much steel as the rest of the world combined and a slowdown in the world’s second largest economy has the seen iron ore price decline 19% in 2014.

The renewed weakness in the price after recovering from near 18-month lows suffered mid-March, comes as worries continue to mount about the outlook for the Chinese property sector after the value of new homes sold fell 7.7% and new home starts dropped more than 25% during the first quarter.

China’s property sector which has enjoyed years of red-hot growth, is a key component of its economy and also accounts for 47% of all steel demand, three times that of infrastructure.

Shares in the big three producers, where profits from ore far exceed that derived from copper and other commodities, were marked down in New York trade on Monday as the price fell.

American depository receipts of Anglo-Australian giants BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) added to declines in London sliding more than 2%, while Brazil’s Vale SA (NYSE:VALE) gave up 3.5%.

Combined the big three have a market value of $355 billion.

Earlier number four producer Fortescue Metals Group (ASX:FMG) dropped 4% in value on the Sydney Stock Exchange and shares in Anglo American (LON:AAL) trading in London also retreated.

Apart from moderating demand from China, another factor pushing down the price of iron ore is the prospect of a huge ramp up in global output.

BHP Billiton, Fortescue Metals Group and Rio Tinto are targeting an additional 170 million tonnes in Australia in 2014, while Vale wants to grow from just over 300 million tonnes per year in 2013 to over 400 million tonnes by 2018.

Image by ttstam on Fotopedia

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