Daily iron ore price update (panic!)

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Find below the iron ore pricing table for May 30, 2013:

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Rebar futures also blew lower. And the charts for spot and swap:

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Although the move in spot is big and scary, it’s the breakdown of the swaps that’s significant. The only support left now is the November low of last year around $105. I have no faith that it will hold and that opens a path to last year’s lows.

The spread charts are screaming in but it’s all a little late. Spot to swap has normalised:

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And spot to rebar is close too:

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But that’s all a bit bloody academic at this point. These markets are turning unruly and, as we know, when iron does that, volatility can be extreme.

Why you might ask?

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The FT provides an answer:

Analysts said that both traders and steelmakers in China, which accounts for 60 per cent of global seaborne iron ore imports, had been selling down stocks amid widespread anxiety about the outlook for demand, and concerns about overcapacity in the industry.

“Panic is building on panic,” said Melinda Moore, bulk commodity strategist at Standard Bank in London.

…“Unfortunately, steel inventories have been too high, relative to underlying demand growth,” she said. “This has caused the dramatic fallout in steel prices over the past few weeks. Iron ore prices have fallen in tandem as mills scramble to maintain their limited profit margins.”

…The slide in prices is also causing pain in the steel industry. The China Iron and Steel Association, which represents the country’s steel mills, on Wednesday offered a bleak outlook for the rest of the year.

“I don’t expect trends to change in the next few months because capacity is too high and industry consolidation rates are too low,” Wang Xiaoqi, deputy chairman, told a conference in Shanghai, according to Reuters. “I predict steel prices are going to fall more deeply this year.”

So, China’s mills misread the new government in the big build earlier this year. There is little prospect for an iron ore favourable stimulus either.

As well, in the next six months Fortescue and Rio inject another 80 million tonnes or so into supply. BHP follows first quarter next year with 30 million more.

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We will no doubt see a restock cycle at some time but this market, and the nation that depends upon it, is in trouble.

Failing to install a big resource rent tax and fiscal stabilisation mechanism like an SWF will be looked back upon as one the great Australian economic blunders.

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.