Goldman Says Iron Rally on Borrowed Time as China Buys Less -by Jasmine Ng (Bloomberg News – June 7, 2015)

Iron ore imports by China contracted in May from April and the same month a year earlier, highlighting weakening demand in the largest buyer as Goldman Sachs Group Inc. repeated a forecast for a rally in prices to reverse.

Cargoes fell 12 percent from April to 70.87 million metric tons, and were 8.4 percent lower than a year earlier, according to customs data on Monday. That’s the lowest monthly total since February. Adjusted for the number of days in the month, the imports in May were at the slowest pace since November.

While prices posted the biggest monthly advance in almost two years in May as China’s port stockpiles fell by a record, Goldman Sachs is among banks predicting that the rally won’t last as global supplies are set to expand further amid a glut. In many commodity markets, recently installed low-cost supply can now be stretched to meet demand, BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie said last week.

“This rally is living on borrowed time,” Goldman analysts Christian Lelong and Amber Cai said in a note on Monday, targeting a drop back below $50 a ton. While higher prices may last in the short term, rates need to drop again to force the closure of higher-cost mines to balance the market, they said. Last month, Goldman said iron ore’s jump offered investors an opportunity to bet on renewed declines.

Ore with 62 percent content delivered to Qingdao fell 0.2 percent to $64.34 a dry ton on Monday, according to Metal Bulletin Ltd. Prices jumped 10 percent in May following a 9.4 percent gain in April. After bottoming on April 2 at a decade-low $47.08, prices trimmed this year’s loss to 9.7 percent.

Overseas Supplies

Over the first five months, iron ore purchases were about 378 million tons, down about 1.1 percent from the same period in 2014, according to the data. China buys supplies from abroad to supplement locally mined production.

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