Iron ore prices drop amid Chinese future confidence

Iron ore has dropped toward $US50 per tonne, the first loss in four weeks, as the US dollar strengthens. It comes amid predictions from investment groups, including Goldman Sachs, that recent increases are not likely to continue.

According to Metal Bulletin Qingdao’s spot ore with 62 per cent content price fell to $US56.37 per dry tonne on Thursday, a 2.6 per cent drop, marking a continued decline. Prices are still 29 per cent higher in 2016 after three years of losses due to a rise in low-cost supply and dropping steel demand in China.

Iron ore prices fluctuated in March due to conflicting economic signs from China’s high port stockpiles and US dollar volatility. This week’s rising dollar has impacted commodities priced in US currency as the Federal Reserve defer increasing interest rates until later in the year. The Bloomberg Dollar Spot Index had a 1.2 per cent increase due to raw materials losing 2.3 per cent.

March 7 saw the biggest ever one-day price gain, which triggered a response from banks that the rise would be temporary.

According to Bloomberg, an analyst at China Merchants Future Co in Shenzhen, Zhao Chaoyue said, “There hasn’t been much improvement in China’s economy and steel mills aren’t keen to purchase iron ore, especially after the price surge.”

“The dollar also surged, spurring a sell-off in commodities.”

The benchmark losses came ahead of a drop in future iron ore prices in Asia. In Singapore, the SGX AsiaClear settlement for May dropped by 5.8 per cent to $US49.90, while the China Dalian Commodity Exchange futures dropped by 5.1 per cent.

This translated into pain for the majors as BHP’s stock price fell by 3.4 per cent, Fortescue by 2.3 per cent and Rio Tinto by 3.6 per cent.

The earliest private indicators for China in March showed that their monetary and fiscal stimulus are yet to push a rebound.

At the Boao Forum for Asia on Thursday, a platform for Asian and other world wide governments, experts and enterprises to discuss the economic, environmental and society issues, Premier Li Keqiang’s keynote speech stated that China’s economy is seeing positive indications of change for 2016, with the government expecting to maintain a growth rate over 6.5 per cent in the next five years.

According to Bloomberg, Nev Power, Fortescue Metal’s chief executive officer, sensed more optimism and confidence in China’s economy compared to last year. However, for iron ore he remained pessimistic, stating, “we are going to continue to see volatility though, because it is so heavily traded in the futures market that we will continue to see that driven by any positive or negative news flow.”