Daily iron ore price update ($90? $80?)

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The iron ore price fell on Friday May 23, 2014 by 1.3% to an equal low for this long down move at $97.50:

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More of the same. Paper markets were weak as the 12 month swap and rebar futures fell to recent lows. Dalian is a little better but hardly reassuring. Physical markets were mixed. On the downside, spot fell to an equal low for this down move and the port pile grew another 80k to 111.3 million tonnes. Better was rebar average trading flat and the Baltic Dry capsize component reversing upwards 4%.

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Texture from Reuters:

The price needs to fall below $90 to squeeze out some suppliers and “balance the market,” said an iron ore trader in China’s eastern Shandong province.

“That’s the only way I can see for iron ore to recover since China’s steel market is not doing good,” he said.

…”I think it’s too early to say we have reached a bottom for iron ore. The big mills are still selling some of their cargoes and most of them are arriving in June so we expect more supply coming through,” said a trader in Shanghai.

Analysis from Credit Suisse via The Australian:

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The investment bank said it believed that prices could display some stability in the near term, or even manage modest gains, but that the second half of this year should deliver a new low below 2012’s trough of $US87 a tonne.

The bank’s commodities team said the potential of a tug boat strike at Port Hedland that would affect exports for BHP Billiton and Fortescue Metals could lead some Chinese steel mills to take advantage of low raw material prices and trigger covering of some short financial positions.

“If this plays out, prices should temporarily arrest their recent declines and stabilise around $US100 a tonne, possibly even a little higher,” Marcus Garvey said in his latest note. “We doubt though that prices will stage any kind of more sustained rally.”

I do not see the PH strike as a likely outcome. There is too much at stake for the country and it would be a public relations disaster for the painters and dockers union. As I wrote last week, the absence of a short squeeze in paper markets around this and the Indian supply issue is the real story.

All things equal, the main debate around the iron ore price is lower now or lower later.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.