Iron ore hits a downward spiral

The price of iron ore has slumped this year - expect the decline to continue.

The price of iron ore, the main ingredient in steel, has slumped by 35% this year to $84 a tonne, its lowest level since 2009. The market is caught in a "downward spiral", says Mark Lyons of Citigroup.

The main problem is slowing demand for steel in China, where property, construction and infrastructure are all weakening as the government clamps down on lending. "Unless we get significant stimulus" in the second half of 2014, says Goldman Sachs, steel prices could weaken further.

The government is trying to wean the economy off credit-fuelled investment, so it appears reluctant to cut interest rates, says Neil Hume in the FT. There has only been a series of mini-stimuli' targeted at sectors such as clean energy and public housing.

In the meantime, stockpiles at Chinese ports are close to multi-year highs, while production at major miners, such as BHP Billiton and Rio Tinto, has been ramped up.It takes time for the industry to cut back capacity in response to tumbling prices,says Anglo American's CEO Nark Cutifani.

"In this industry a lot of capacity canbe really sticky the downside [to prices could be] longer than you anticipate."CLSA's Ian Roper reckons prices could hit $75 a tonne next year.

Most Popular

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021
The future belongs to emerging markets – three EM stocks to buy now
Share tips

The future belongs to emerging markets – three EM stocks to buy now

Professional investor Carlos von Hardenberg of Mobius Capital Partners picks three of his favourite emerging-market stocks.
5 Jul 2021