After a big rally last year iron ore prices are rolling over. The FT reports that a glut of supply in China is weighing on prices.
The sharp drop on Wednesday is the latest swing for a commodity that raced higher over the second half of last year to more than $90 a tonne. The benchmark 62 per cent ore for immediate delivery into China was trading at $67.9 a tonne, according to the Steel Index, a price reporting agency.
Signs of faster economic growth in China helped the rally in the second half of last year, leading to a build-up of iron ore inventories at the country’s ports. With China beginning to tighten credit conditions this year, the market now faces the risk of weakening demand and the inventory overhang.
Inventories of iron ore at Chinese ports have climbed to 134m tonnes this year, up more than a third from the first half of 2016, according to analysts at J Capital. Analysts at Goldman Sachs expects iron ore prices of $60 in the second half.
Central to the profitability of miners and steelmakers, iron ore is seen as a proxy for the pace of industrial activity and construction in China. The Asian economy imports about two-thirds of the world’s seaborne ore.
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