Iron ore tumbles amid China contagion – by Neil Hume (Financial Times – July 8, 2015)

Iron ore, the key ingredient in steelmaking, suffered its biggest one-day fall since records began, dropping by more than 11 per cent to a seven-year low as worries about the Chinese economy continued to mount.

Ore with 62 per cent iron content for immediate delivery to China dropped $5.60 to $44.10 a tonne, according to an assessment from The Steel Index.

That was the biggest one-day percentage drop since TSI begun compiling records for physical iron ore transactions in 2008. Iron is critical to the profitability of several major mining companies such as Anglo American, BHP Billiton, Rio Tinto and Vale.

They have spent billions of dollars expanding their operations to meet expected demand from China but, if the iron ore price were to stay at the current level sustained period of time, it would call into question the ability of miners to fulfil promises of higher return for shareholders.

Over the past year iron ore has dropped almost 55 per cent as a tsunami of new supply has overwhelmed demand.

The price has dropped $15 a tonne in the last seven days as concerns about slowing economic growth in China, the world’s biggest producer of steel ore, have intensified in the wake the stock market rout.

The trigger for Wednesday’s decline was a sharp sell-off in the derivatives market. Iron ore futures on the Dalian Commodity Exchange in China hit a record low in heavy volume.
“The physical market is playing catch up,” said one analyst, noting Dalian futures had traded ‘limit down’ for the last three sessions.

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