Iron Ore Bust Follows Hard on Heels of China’s Speculative Boom – by Jasmine Ng (Bloomberg News – May 13, 2016)

Don’t say there wasn’t any warning. Iron ore’s gone from boom to bust in the space of just three weeks, fulfilling predictions for a slump in prices that were jacked up to unsustainable levels by a short-lived speculative frenzy in China.

In Singapore, the SGX AsiaClear contract collapsed 10 percent this week after dropping 11 percent the week before, while in China, futures in Dalian plunged on Friday to the lowest since February as steel in Shanghai capped the biggest weekly loss on record. Spot iron ore prices from Metal Bulletin Ltd. sank 6.4 percent this week to a one-month low.

Iron ore and steel are buckling again after widespread predictions the frenzy in China that propelled prices upward in April wouldn’t endure as regulators clamped down and the rallies induced higher production. Iron ore stockpiles at ports in China are near 100 million tons, while mills produced more steel than ever in March.

Lower steel prices erode mills’ margins, cutting their ability to restock on iron ore, according to China Merchants Futures Co. “Iron‎ ore prices have been on a roller-coaster ride this year,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney.

“The recent pullback, partly in response to reduced speculative activity, ‎brings the iron ore price more into line with fundamentals, although we expect that further falls are still likely.”

Among those that foresaw a retracement, Goldman Sachs Group Inc. said on April 22 that iron ore’s rally was unsustainable, and a tight steel market in China was a “temporary distraction” from fundamentals.

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