LAUNCESTON, Australia, Oct 12 (Reuters) – With spot Asian iron ore having fallen back below $60 a tonne, the price of the steelmaking ingredient appears to be heading toward a level more in line with supply and demand fundamentals.
However, as usual the risk when a rally reverses as quickly as the current decline in iron ore is that prices overshoot to the downside. The Asian spot price .IO62-CNO=MB fell to $59.65 a tonne on Wednesday, the lowest level in 3-1/2 months and a drop of 25 percent since the recent peak of $79.65 in late August.
Iron ore is now well below the $78.87 it fetched at the end of 2016, and it is proving to be a volatile year, with two strong rallies being followed by sharp reversals.
Both the surge to the 2017-high of $94.86 a tonne in late February and the August-peak were driven by optimism over robust steel output in China, which buys about two-thirds of global seaborne iron ore shipments.
The latest drop in iron ore prices has come as some of the optimism over Chinese steel production and demand fades, especially in the light of ongoing mill closures as part of efforts to improve air quality ahead of the major conference of the ruling Communist Party, which starts on Oct. 18.
While prices have been volatile, China’s import demand has been remarkably stable.