The ‘Weird’ Commodity Hurting the Bears as Prices Double – by Ranjeetha Pakiam (Bloomberg News – December 7, 2016)

Iron ore’s probably heading for a retreat in 2017 as new mine supply comes online and a surplus builds, according to UBS Group AG, which acknowledged that the commodity’s recent surge was unexpected and had torpedoed an earlier forecast for a slump this quarter.

“It’s just surprised me,” Wayne Gordon, executive director for commodities and foreign exchange at the bank’s wealth-management unit, said in an interview in Singapore on Wednesday.

In early October, Gordon told Bloomberg Television the final two months of the year may mark a “death knell” for the raw material as stockpiles climb. “Iron ore is weird because the inventories are very high in China and it’s got to be pure spec flows,” he said.

The raw material has doubled since bottoming 12 months ago on growing optimism that demand would remain steady in China and rising speculative interest. The advance, which has persisted even as China’s exchanges sought to curb investors’ enthusiasm, has wrong-footed analysts as well as miners. This week, Barry Fitzgerald, chief executive officer of Australia’s Roy Hill Holdings Pty, said every time he makes a price forecast, he gets it wrong.

“We’ve had a tough year in 2016,” said Gordon, who now sees the price back down at about $60 a metric ton in six months. “The market’s been balanced, if not in a slight deficit for iron ore, which is remarkable because we had that massive surplus the previous year. But next year, you’ll start to see that building up with a surplus again.”

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