By Rhiannon Hoyle
SYDNEY--The value of iron ore shipped to China sank nearly 4%,
snapping a two-week rally as higher prices damped appetite for the
steelmaking ingredient.
Steelmakers in China, the world's largest steel producer and
consumer, had been on a buying spree in recent weeks, stocking up
on the raw material ahead of a seasonally strong period for steel
output and sales, analysts said.
Prices for the raw material stalled just below US$60 a metric
ton, though, after rebounding from a decade-low of around US$47 a
ton earlier this month. Morgan Stanley analyst Tom Price said
buyers were likely rattled by the spike in prices.
Ore with 62% iron content sold at China's Tianjin port--widely
viewed as an industry benchmark--attracted a price of US$56.90 a
metric ton Wednesday, down US$2.30 a ton on the previous day,
according to information provider The Steel Index. Prices are down
nearly 50% on a year ago.
Credit Suisse analyst Matthew Hope put recent volatility down to
restocking activity by Chinese steel mills.
"Chinese mills will not buy raw materials when the price is
falling, so the demand vacuum sees the price collapse below the
level steady demand would allow," he said. "When the price
stabilizes, a surge of restocking lifts the price too high, and
then the cycle starts again."
Morgan Stanley estimates prices could still rise to US$70-US$80
a ton before peaking in mid-2015, when rising supplies from new and
expanded mines in places such as Australia are expected to push
prices lower.
Large producers including Rio Tinto PLC and BHP Billiton Ltd.
have expanded their operations in the Pilbara iron-ore mining hub
of northwest Australia in recent years, betting that China will
still need more of the commodity to make steel for its skyscrapers
and for industries such as auto manufacturing.
"There's still lots more new ore from the majors" to come later
this year, said Mr. Price.
Investment bank Goldman Sachs recently downgraded its outlook
for the market, and said it didn't expect prices to sustain a
recovery above US$50 a ton.
On Wednesday, China's state-backed steel industry association
called on the central government to accelerate tax-relief measures
to support the country's own iron-ore industry, much of which is
unprofitable at current prices.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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