Iron ore recedes from rally

Iron ore has begun its descent from an aggressive rally last week

Last week the metal saw its largest one day rally in years as the price for ore of 62 per cent grades jumped by nearly a fifth to just over US$63 per tonne.

At the Port of Tianjin the overnight movement turned into the single largest one day gain ever as it rose to US$62.60 per DMT, marking a 46 per cent since the start of 2016.

Iron ore rose close to 70 per cent above the recent low watermark price of US$37 it rested at only a few months ago.

The metal is now falling back in line with market, and even miners’, predictions.

Even as iron ore rose, Goldman Sachs was predicting the metal’s reversal, stating its movements were “not sustainable”.

This was echoed by Citigroup, which believes optimism over China’s economic movements will be short lived.

Citigroup remains bearish on metal’s future and Chinese demand, while Axiom Capital Management dismissed the current rally as a ‘blip’.

 “Higher prices are much harder to sustain in a supply-driven market since supply is primed to return with higher prices,” Goldman Sachs analysts wrote in the report.

“But this lesson will likely only be learned through false starts.”

Jeffrey Currie, Goldman Sachs’ head of commodities research, stated, “Demand hasn’t really changed, [so] it takes lower prices to push and keep supply below demand to create a deficit.”

In terms of iron ore, even major miners remain cautious.

Growth is underpinned by consumption and services and is inherently less steel intensive,” BHP’s Western Australian iron ore asset president, Edgar Basto, stated at the Global Iron Ore & Steel Forecast Conference in Perth.

“Overall steel and pig iron production are expected to be subdued in 2016.”

Now the metal is falling once more, dropping below the US$60 per tonne market, slipping 1.4 per cent at the Port of Qingdao to US$57.09 per DMT.

It makes a continual downwards trend since it reached the peak of its short abortive rally on 8 March.

“The insane rise at the start of the weak was irrational and is unlikely to continue,” said  Huang Huiwen, an analyst at Shanghai Cifco Futures, told Bloomberg.

“Usually after a period of abrupt gains, prices tend to drop back quite sharply. I think we’ll see that in iron ore.”

The analyst went on to forecast a more steady price point of between US$45 and US$55 per tonne.

 

 

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