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Iron Ore Nearing $50, December Lows May Be Retested in 2016

May 25, 2016 at 12:43 by Brent Lantzy

After a dramatic rise in iron ore prices (the key component to steel production) throughout the beginning of 2016 culminating in April highs near $70, the raw material now faces a dramatic fall nearing the $50 level.

Softening demand in China for steel due to slower economic growth, ever-increasing and lower-cost production, oversupplied port inventories, and renewed expectations of a US interest rate hike in June have all contributed to the decline.

At 12:18 PM GMT, Rebar for October delivery had closed down 1.3% at 1,916 yuan ($292) on the Shanghai Futures Exchange.

Spot iron ore prices at the Qingdao port ticked slightly higher on Tuesday. According to Metal Bulletin, the price of benchmark 62% fines rose by 0.27%, or $0.14, to $51.36 per dry metric tonne, still down 27.1% from April highs.

The Steel Index reports the spot price for 62% fines at Tianjin port to have fallen by 4.7% to $50.20.

Reports last week showed that China’s iron ore port inventory swelled to over 100 million tonnes, a 14 month high which nears the mid-2014 record of 114 million tons, and could weigh down the prices of further imports.

The Chinese government announced they intend to invest CNY 4.7 trillion ($720 billion) on 303 transport infrastructure projects over the next three years, though this is unlikely to affect the underlying issue of increasing long-term supply glut.

FastMarkets and Sucden Financial released a bearish quarterly report for Q2 2016 suggesting a continuation to the larger downtrend noting,

“Given the fundamentals, we see the rebound as a counter-trend move; unless there is a surprise and sustainable recovery in China’s economy, iron ore prices could easily retreat to test the lows around $38 per tonne again later in the year.”

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