Iron ore prices teeter – by Matt Chambers (The Australian – May 20, 2014)

IRON ore prices last night fell below $US100 a tonne for the first time in nearly two years, hit by uncertainty around China’s steel output and stronger than expected Australian supply that earlier sent mining stocks sliding.

The only other time iron ore prices have previously slipped below $US100 this decade, briefly in 2012, spot-market buying of the nation’s biggest export dried up to the extent that prices rapidly fell another 13 per cent.

Benchmark Chinese iron ore prices fell $US2.20 to $US98.50 late last night, their lowest since September 2012 and in line with indications of weak buying demand shown in Chinese and Singaporean futures yesterday.

Benchmark prices had slipped 2 per cent to $US100.70 in China on Friday night. The fall follows Treasury forecasts in last week’s federal budget showing the price would fall below $US90 a tonne within two years.

This is in line with downgraded forecasts as Australian miners unexpectedly ramp up boom-time expansion projects on or ahead of time, and as the outlook for Chinese demand growth looks less certain. UBS analyst Tom Price yesterday trimmed his 2014 iron ore price forecast, leaving it at $US111 a tonne, because he had been surprised by the rate of expansion of Australian mines.

This followed a similar move by Macquarie on Friday, which cut its forecast to the same price.

Meanwhile, Credit Suisse said a trip to China’s industrial heartlands by Singapore-based analyst Andrew Shaw had left it with serious concerns about the nation’s steel sector.

“The steel sector is in a financial mess, with both private and state-owned mills struggling to generate positive cashflow,” Mr Shaw said. “We would not be surprised to see a state-owned entity in the steel sector go bankrupt — downside price risks for iron ore are escalating.”

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