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Iron Ore Below $50 Hits Miners as Rio Tumbles 5.1% This Week

Iron ore is rounded out another poor week, capping another bad month in what’s shaping up to be another tough year as the world’s largest miners boost low-cost output while China’s steel demand contracts.

Prices recorded a third weekly loss after falling below $50 a metric ton and are 12 percent lower in October, the biggest monthly drop since March. Rio Tinto Group lost 5.1 percent in Sydney this week, while Fortescue Metals Group Ltd. plummeted 19 percent, the most since 2008.

“We may see iron ore ultimately declining to between $40 and $45,” Dang Man, an analyst at Maike Futures Co. in Xi’an, China, said by phone on Friday. “Mills are expected to cut production. Once that happens, the effect of weakening demand will be felt more strongly in iron ore.”

This week iron ore breached a trading range of $50 to $60 that’s held for more than three months, pulled lower by the twin factors of surging supply from producers including Rio Tintoand weaker consumption in China. Steel demand is shrinking at an unprecedented speed and mills are losing money, according to the China Iron & Steel Association. Iron ore may stay below $50 for some time, Capital Economics Ltd. said, while Clarkson Capital Markets LLC sees an average of $47 this quarter.

Port Stockpiles

Ore with 62 percent content delivered to Qingdao rose 0.4 percent to $49.83 a dry ton on Friday after falling to $49.65 on Thursday, the lowest since July 9, according to Metal Bulletin Ltd. Prices dropped as port stockpiles tracked by Shanghai Steelhome Information Technology Co. expanded to the highest level since May. The commodity has fallen 30 percent so far this year.

A weak steel market and oversupplied ore trade constrained buying interest this week, Morgan Stanley analyst Tom Price wrote in a note received Friday. Prices are under pressure as steelmakers tend to scale back production before the northern hemisphere winter lull, curbing demand, Price said.

Infrastructure development and housing growth in Asia will drive iron ore use, Andrew Harding, chief executive of Rio’s iron ore division, was quoted as telling In The Black magazine. While China has had short-term hiccups, the company sees a few decades of strong development across Asia, Harding told the magazine.

Miners’ shares are in retreat. Rio ended 1 percent lower at A$50.65 in Sydney to cap a third weekly loss, while BHP Billiton Ltd. was 6.4 percent lower this week. Together with Fortescue, the trio are Australia’s three largest shippers.

“The major producers’ supply expansion will remain a long-term factor — they’re still ramping up output — and demand is very poor,” said Dang at Maike. “From the perspective of shipments and port inventories, there’s hardly any support for prices.”

Source: Bloomberg

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