Just when the resources industry in Australia was anticipating a further improvement in iron ore prices, reports said that the price of the key steelmaking ingredient plummeted to a 14-month biggest daily drop to $145.40 a tonne.
Iron Ore Rebound Peaking?
That means the price of iron ore with 62 per cent iron content declined by $7.50 a tonne, the largest daily drop since November 2011, data provider Steel Index said.
Just a week ago, iron ore reached a 15-month high of $158.50 following a one-month rally in prices that pushed the value of the commodity up by 40 per cent from a low of $89.
The initial price boost was seen by some miners as a return to the heydays of the resources boom, accompanied by increases in shareprices of major mining companies such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals (ASX: FMG).
Rio even upped its production target for mid-2015 to 360 million tonnes despite its underlying profits being halved due to lower iron ore prices in 2012.
On account of the drop in iron ore prices on Wednesday, shareprices of BHP declined 0.5 per cent and Rio 1.8 per cent in New York trading overnight.
A London-based iron ore trader said the price drop was forthcoming because of the waiting mode among Chinese buyers following the big price increase in December which made the customers think prices were not sustainable anymore. The trader added physical prices may go down a bit more to $140, but it won't be much lower "because not everyone is sitting on massive stocks."
The drop in prices of the commodity was also accompanied by a decline on Wednesday in Shanghai steel futures for the second consecutive day as the most active rebar contract for May delivery on the Shanghai Futures Exchange closed at $630 a tonne or 1.1 per cent lower.
This development confirms the observation of the London trader. "Most of the mills have stopped buying iron ore for the time being and sales of steel products are also very slow," The Sydney Morning Herald quoted a Shanghai iron ore trader.
However, the trader forecast that buyers will return next week ahead of the Chinese New Year, while prices are expected to hover between $145 and $150.
Meanwhile, the European Commission concluded that China is providing illegal subsidies to Chinese steel makers which would open the door for European companies to seek higher import tariffs on a wide range of Chinese products. The Financial Times cited a report that said China was helping local steel producers secure materials at below market prices.
The commission had previously recommended a 50 per cent hike in import duties for Chinese coated steel following its imposition in 2012 of a 58 per cent anti-dumping duties on Chinese steel producers.
Follow us on LinkedIn