Iron ore retreats with Chinese steel after frenzied rally

15 November 2016

Iron ore futures in Asia dropped sharply on Tuesday, after a frenzied rally over the past week to multi-year highs, as weaker Chinese steel prices tamed bullish bets on the raw material.

Some analysts say the rally in iron ore that saw the benchmark spot price soaring 23 percent last week - its biggest such gain ever - may have been driven more by speculative play.

At nearly 108 million tonnes, stocks of iron ore at Chinese ports remain close to two-year highs, while coal supply in the country was limited amid shuttered mines. Copper inventory on London Metal Exchange warehouses has dropped to their lowest since August.

"We understand the moves in metallurgical coal and copper given inventory levels, but we believe iron ore is simply being pulled up with the whole commodity complex," Clarksons Platou Securities analyst Jeremy Sussman said in a note.

The most-traded January iron ore on the Dalian Commodity Exchange was down 4.4 percent at the session's low of 601 yuan ($88) a ton by midday, after hitting a 33-month high of 656.50 yuan on Monday.

On the Singapore Exchange, January iron ore fell 3 percent to $72.44 a ton.Activity in the physical iron ore market was limited, traders said, after recent deals that lifted the benchmark spot price to a more than two-year high at near $80 a ton.

Iron ore for delivery to China's Tianjin port was unchanged at $79.70 a ton on Monday, according to The Steel Index.Chinese spot steel prices also retreated along with futures, traders said.

China's crude steel production will decline to around 750 million to 800 million tonnes a year by 2020, the country's Ministry of Industry and Information Technology said on Monday.

Consumption will slow to 650-700 million tonnes by then, compared with demand of 700 million tonnes in 2015, it said.

That suggests China's steel production will drop by 1 percent annually between 2017 and 2020, said Argonaut Securities analyst Helen Lau.

The most-active rebar on the Shanghai Futures Exchange dropped 5.3 percent to 2,879 yuan a ton, after touching 3,220 yuan on Monday, its strongest since May 2014.