It’s been nothing but one-way traffic for iron ore prices over the past month. Lower, and substantially so. After soaring to multi-year highs, the boom is quickly becoming a bust.

Australia’s most valuable export item was slammed again this week, tumbling to levels not seen since the beginning of the year.

The price for benchmark 62 per cent iron ore fines slumped to as low as $US82.38 a tonne, extending the slide since early July to over 34 per cent. Similar falls were seen across lower and higher grades with 58 and 65 per cent fines also extending their falls from the highs struck last month to more than 30 per cent.

Both the benchmark and higher grades sit at seven-month lows, completely unwinding the gains seen following a deadly accident at the Brucutu iron ore complex operated by Brazilian miner Vale in late January.

“The rout in iron ore shows no signs of stopping,” Daniel Hynes, senior commodity strategist at ANZ Bank, said in a note released on Thursday.

“Investors have become increasingly concerned about economic growth in China, with industrial output at its weakest since 2002. The promised boost to infrastructure spending has also failed to materialise.”

Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, offered a similar assessment, describing the recent decline in prices as a “capitulation” to clients.

At a time when profit margins for Chinese steel producers were already coming under pressure from higher costs for raw materials, Mr Dhar said the combination of an escalation in the trade war between the United States and China, coupled with signs of a recovery in Brazilian seaborne supply, proved to be a potent mix for prices.

“Demand was weakening before Trump announced 10 per cent tariffs on around $US300 billion ($443 billion)  worth of Chinese imports in early August,” Mr Dhar said.

“It was specifically the Chinese response with the yuan devaluation to the new tariff announcement that saw demand collapse as buyers and traders moved firmly to the sidelines to see where prices would settle.

With signs emerging that iron ore stockpiles at Chinese ports are starting to recover after falling to the lowest level since early 2017 in June, Mr Dhar doesn’t see prices returning to the highs struck earlier this year.

“At the end of the day, a sustainable increase in China’s iron ore port stockpiles would firmly signal easing iron ore supply concerns. And that appears to be happening too,” he said.

The Commonwealth Bank now sees the benchmark price averaging $US85 a tonne over the December quarter, around the level where it currently sits. Longer-term, the bank sees prices falling to $US67 a tonne by December quarter next year.

Mr Hynes of ANZ Bank also believes the worst of the price rout is over, at least in the short-term, describing the recent plunge as “overdone” given uncertainty over the outlook for Brazilian supply.

“The road to full capacity is a rocky one,” he said.

“Vale estimates this target as still two to three years away. We see a risk of this timeframe pushing out further.

“This should see supply tightness remain an issue for the foreseeable future.”

David Coates, senior resources analyst at Bell Potter Securities, is another who expects that prices will begin to stabilise.

“While the softening macro picture and the recovery in port stockpiles have undoubtedly been bearish factors, we question whether an element of de-stocking by steelmakers and diversion of Brazilian domestic supplies has helped this,” Mr Coates said.

“On balance, we think the iron ore price can begin to find support around these levels.”

Westpac Bank’s head of financial market strategy Robert Rennie also expects prices will steady in the near to medium-term, forecasting the benchmark will finish the year somewhere between $US90 to $US100 a tonne.

However, over the longer-term, Mr Rennie sees prices moving lower due to a recovery in Brazilian supply and softer steel demand in China.

“This combination of a lift in supply and a moderation in demand is why we see the steel price correction extending through 2020, driving iron ore prices down to $US65 a tonne by the end of next year.

Fonte: The Sidney Morning Herald