Iron ore price assumptions collapse

By David Llewellyn-Smith

The iron ore complex tanked again yesterday:

Perhaps some hope in the contango with the 12month which did signal the bottom in last year’s crash:

But Chinese steel prices are still falling too:

Here are some choice iron ore quotes from Reuters:

• “We believe that China is in the middle of a considerable inventory adjustment. While there has been some suggestion that steel mills are destocking we believe this could take time,” Deutsche Bank said in a note.
• Between March 2 and Aug. 24, the price of rebar in south China has fallen 14 percent to $607 a tonne, while the supply of steel stocks has dropped to 5.83 days from 7.02 days, Commonwealth Bank of Australia said.
• “Sentiment is so bearish, and mills are just in wait and see mode right now. If someone’s buying, they’re asking for a big discount,” said an iron ore trader in Shanghai.
• Credit rating agency Fitch said the price weakness in both steel and iron ore should continue through to the end of the first quarter of 2013.
• “Fitch believes that the prices of steel and related raw materials – including iron ore and coking coal – are unlikely to rebound in the short term, but rather are looking for new equilibriums that take into account the increasing supply of raw materials and demand growth for steel which is likely to be slower,” it said.

And the AFR:

• Macquarie analyst Graeme Train said the price could fall as low as $US80 a tonne if Chinese steel mills continued to reduce their stock and steel demand and pricing remained weak.
• CLSA…cut forecasts for 2012 by 5 per cent to $US129 a tonne and to $US110 a tonne next year, followed by just $US85 a tonne in 2014.
• CLSA commodity analyst Ian Roper said even with downgrades to expected new global supply, the market would be oversupplied by 200 million tonnes a year by 2016 as a result of China’s own mines.
• “We have redeveloped our domestic iron-ore cost curves at a provincial level and found that costs have compressed by around $US10 a tonne for marginal suppliers over the past year, mainly due to lower energy costs and lower local-government taxes,” Mr Roper said.

All good. But I’m afraid still not bearish enough.