CANBERRA: A slump in the iron ore price should not be read as the start of the predicted price correction as analysts instead blame the impact of Chinese holidays. Australia’s largest mineral export slumped to $US53.14 per tonne at the weekend – the lowest since late July – after trading above $US56 last week.
“It’s because Chinese traders are out of the market due to the national holidays this week,” ANZ head of commodities Mark Pervan said. “If you have three-quarters of the market on holidays, no one’s prepared to go long in that market. You want to be short. It’s just a precautionary thing. “If you look at port stocks, they jumped pretty strongly last week.”
Markets in Shanghai and Shenzhen were shut on Thursday and would remain shut until Wednesday for national holidays in China. Mr Pervan said the drop in demand for steel also flowed through to iron ore prices. “In September and October, steel activity tends to slow down, particularly in October,” he said.
“But the Brazilian and Australian iron ore exporters are still operating the whole time. You’ve got three weeks of demand for four weeks of supply. “Volumes coming out of Brazil and Australia are quite strong.” Iron ore exports from Port Hedland hit an all-time high last month – surpassing the record set in August – as miners boosted shipments via the world’s largest bulk export terminal.
Exports totalled 39.4 million tonnes in September from 39.2 million tonnes the prior month and 36.3 million tonnes a year earlier, Pilbara Ports Authority data shows. Shipments to China were little changed at 33.8 million tonnes from the record 33.9 million tonnes set a month earlier. While supply is rising, questions about demand remain.
As China’s demand for steel declines – a new JPMorgan report says steel demand in China will shrink 4 per cent this year and 2 per cent in 2016 – Chinese steel makers have been looking to increase exports, driving down global prices and spurring trade tensions from the US to India and Africa. JPMorgan said steel exports from China would probably peak in 2015 after shipments doubled in the past two years.
Net exports from the top producer would plateau at about 90 million tonnes a year, with gross shipments at about 105 million tonnes, JPMorgan said.
“Booming steel exports have helped steel production hold up relatively better than steel demand, but we believe exports have reached a peak,” JPMorgan analysts, including Daniel Kang, wrote in a report. “With Chinese exports doubling in the last two years, waves of protectionism measures have been triggered globally.”
China might try to rein in steel exports by adjusting taxes to achieve a situation that benefited both the country and its trading partners, Wang Liqun, vice chairman at the China Iron & Steel Association, said in Qingdao last month.
