Iron ore extended a tumble to the lowest level in more than five years Tuesday as declining home prices in China added to concern that an economic slowdown in the biggest buyer will deepen, exacerbating an oversupply.
Ore with 62 percent content delivered to Qingdao, China, retreated 4.4 percent to $71.80 a dry ton, the lowest level since June 2009, according to data from Metal Bulletin Ltd. It’s 47 percent lower this year, heading for the biggest annual drop in data going back to 2009, and Tuesday’s tumble was the biggest one-day drop since May.
The raw material fell into a bear market this year as BHP Billiton Ltd., Rio Tinto Group and Vale SA boosted output, spurring a global glut just as economic growth slowed in China. Prices may drop to less than $60 a ton next year as output rises further and demand remains weak, Citigroup Inc. said. China’s bad loans climbed in the third quarter by the most since 2005, while new-home prices declined, according to data this week, spurring speculation the cooling economy will weaken further.
“The decline in China’s home prices gives rise to new fears about a significant cooling of the property sector,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said before the price data came out. “Any slowdown in the construction sector would probably be reflected in weaker demand. The global iron ore market is also clearly oversupplied.”
BHP shares fell 1.2 percent to A$32.80, while Rio dropped 1.5 percent to A$58.58 by 11:04 a.m. in Sydney. Fortescue Metals Group Ltd., the country’s third-largest shipper, lost as much as 6.1 percent to A$2.79, the lowest level since June 2009.
New-home prices dropped in all but one city tracked by the government in October from a month earlier, China's National Bureau of Statistics said Tuesday. As the world’s second-biggest economy heads for the weakest expansion in more than two decades, Communist Party leaders have discussed paring the growth target for 2015, according to a person with knowledge of their talks.
“Construction accounts for about 50 percent of China’s steel demand, reflecting the importance of China’s property market to iron ore prices,” Commonwealth Bank of Australia said in a report Wednesday. “The fall in prices is consistent with expectations amongst Chinese steel mills, who are anticipating iron ore to fall under $70 a ton in the first half of 2015.”
Global seaborne output will exceed demand by 100 million tons this year from 16 million tons in 2013, HSBC Holdings Plc said in an Oct. 22 report. The commodity will average $99 a ton this year and $85 a ton in 2015, the bank predicts.
The raw material will dip into the $50s in the third quarter of next year, Citigroup said in a Nov. 11 report that cut price forecasts. The bear market still has a way to go, according to analyst Ivan Szpakowski.
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