Iron ore hits a downward spiral

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

Andrew Van Sickle
By
published
in Features

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.

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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.

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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