Iron ore is poised to decline through to the end of March as China, the world’s largest user, has a week-long holiday next month and mills buy more domestic supplies, Australia & New Zealand Banking Group Ltd. said.
The price may drop to $140 a ton by the end of the first quarter, Mark Pervan, global head of commodity strategy, said in a report today. Iron ore with 62 percent content delivered to the Chinese port of Tianjin was at $148.40 a dry ton yesterday, according to data from The Steel Index Ltd.
Iron ore rallied from near a three-year low in September as China’s growth accelerated and ore imports gained to a record last month on mills’ restocking. A slump in Capesize rates in December flagged a drop in shipments into China this month, Pervan wrote. Financial markets in the second-largest economy are closed for a week from Feb. 11 to mark the Lunar New Year.
“Trading is already starting to wind down for the Chinese Lunar New Year,” Pervan wrote. “We also hear that steel mills are buying a higher level of cheaper domestic iron ore” as they seek to reduce costs, he said.
Iron ore reached $158.50 a ton on Jan. 8, the highest level since October 2011, after rallying from $86.70 in September. The advance is unsustainable, according to a Jan. 21 report from Bank of America Corp., which forecast a drop to $110 by year-end as global supply increases.
Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin port, moisture can account for 8 percent to 10 percent of the weight. Chinese iron ore imports rose to a record 70.9 million tons in December, customs data show.