Iron ore prices collapsed by more than 13% last Friday, effectively choking the 2021 surge and setting up a slide that will take prices much lower before it ends.
Just as last Monday saw the biggest one day rises in the history of the global iron ore market of more than $US19 a tonne (in dollar terms), so Friday saw record-sized falls of between $US26.10 (for 65% fines) to $US28.78 a tonne for the benchmark 62% Fines from Australia.
The slump was triggered by the combination of a sudden weakening in daily steel prices, the realisation new Government policies would hit iron ore demand, a reminder to steel companies about penalties for trying to avoid tougher rules on emissions and capacity, and new limits imposed on iron ore and coking coal futures in Dalian and Shanghai on Monday and Tuesday.
As a result, the price of the benchmark 62% Fe fines product delivered to northern China (mostly from the Pilbara region of Australia) plunged by more than 12% or $US28.78 to $US208.79, from Wednesday’s all time high of $US237.57 a tonne. Friday’s close was also under the previous week’s finish of $US212.26, according to MB Fastmarkets.
It was a similar story for 58% Fe fines (from companies like Fortescue Metals) which dropped 13.5% to end the week at $US179.29 a tonne, from Wednesday’s all time high of $US207.22. That put the price under the previous Friday’s $US185.29.
The price of 65% Fe fines (from Brazil) fell 9.7% on Friday to $US241.70 but that was slightly lower than the previous Friday’s $US243.60.
In the wake of the slide on Friday shares of BHP, Rio Tinto, Fortescue Metals will be pressured on the ASX today.
Friday saw BHP fall 1.6% to $49.57, Rio Tinto lost 2% to $125.43, and Fortescue Metals shares lost 2.8% to $22.79, so things are set up to be volatile this morning.
In China, iron ore futures tumbled 4.5% for the second day running on Friday after a 9% drop on Thursday, with steel prices also sliding on signs of a clampdown by Chinese authorities. That saw Dalian futures down 4% for the week for the September contract.
Prices slumped after officials in the city of Tangshan a steel producing region (where the crackdown on pollution and over capacity started in April) warned factories to maintain market order.
The warning said that any factories engaging in illegal acts — such as collusion, manipulating prices, fabricating information, hoarding or driving up prices — would be “strictly investigated and dealt with in accordance with laws and regulations.”
“If the circumstances are serious, it shall be ordered to suspend business for rectification, or its business license shall be revoked and publicly exposed,” a translation of the statement read, according to western news services.
Prices will remain under pressure this week as a result while steel mills and importers assess where the government wants to see prices. There is little down that the government wants to cut prices and has linked them to the moves to restructure the crude steel making industry.
That means more volatility in pricing and demand in coming months.
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Other commodity prices are also cooling, with copper dipping back from its record highs on Monday by Friday’s close.
Three-month copper on the London Metal Exchange ended at $US10,240 a tonne on Friday May 14, down 1% on Thursday’s close and 4.7% from the week’s all time high of $US10,747.50 a tonne.
In New York Comex copper lost ground as well, settling at $US4.65 a pound. That still left copper up 1.1% over the week but further falls look possible this week with Friday’s momentum weaker.
Meanwhile the industrial dispute we told you about last week involving BHP and a group of unionists seems to have worsened.
A union representing workers at BHP’s Escondida and Spence mines in Chile has rejected the company’s contract offer, raising the risk of a strike at the two sprawling copper deposits, according to Reuters.
The union’s 205 workers run the company’s Integrated Operations Centre which manages cathode and concentrator plants in the north of the country from the Chilean capital Santiago.
Union president Jessica Orellana told Reuters that 97% of the group’s workers had voted to reject the deal.
But there’s no immediate threat of a strike as Chilean law allows either party to now request a five-day government mediation period, extendable for an additional five days, ahead of any eventual stoppage.
BHP told Reuters it is confident of a final deal being struck.
Delayed elections in Chile last weekend could change the political and business climate in the world’s biggest copper producer because of growing pressure for higher taxes and rewards for ordinary Chileans from more and more politicians.
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In New York, Comex gold settled at $US18.38 a tonne, up $US14.10 an ounce or 0.8%. That left the metal hardly changed from the previous week’s close.
Comex silver rose 1.5% on Friday to end at $US27.65 a tonne.
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Oil was also weaker, on Thursday but bounced higher on Friday to end up 0.7% at $US65.37 for West Texas Intermediate. Brent also edged higher, settling at $68.71. WTI was up around 1% for the week, Brent by 0.8%.
US drilling rig data from Baker Hughes showed another rise in the number of rigs looking for oil and gas – up 8 to 453 (and 110 more than a year ago) after a rise of 8 to 353 in the number of rigs looking for oil.
That was up 94 on a year ago. There’s 110 rigs drilling for gas, up 21 from a year ago as well.
US oil stocks at 487.7 million barrels were down 2% on the five-year average and US output edged back up to the 11 million barrel a day estimate last week.
