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“We Only Needed A Trigger” - Iron Ore Plunges Into Bear Market, Weak Demand Outlook

Courtesy of ZeroHedge. View original post here.

Iron ore futures have yet to find a bottom, remained under pressure on Wednesday, hitting its lowest point in six weeks amid rising supply and deteriorating demand.

Iron ore on the Dalian Commodity Exchange, for January 2020 delivery, plunged 4.6% to 95.52 per ton, the lowest level since late June.

The steel-making commodity dove into a bear market in about a week is a red flag after several indicators from rising port stockpiles in China to declining profits for steel mills foreshadowed the plunge in prices, reported Reuters.

“Supply-and-demand drivers have been tilting to a bearish stance for weeks now — the fall was in the making, and we only needed a trigger,” Marex Spectron Group analyst Hui Heng Tan told Bloomberg, referring to the latest escalation in the trade war.

The recent weakening of the Chinese yuan, which cuts the purchasing power of steel mills already experiencing margin compression, sparked the selloff in iron ore prices, he added.

Traders dumped iron ore contracts on US-China trade war developments that started spiraling out of control last week. Then the Chinese yuan was allowed to move over seven earlier this week by the People’s Bank of China, which extended the selloff in iron ore. 

Earlier this week, the China Iron & Steel Association reported that iron ore prices would remain depressed in 2H19 as mainland consumption declines.

“Mills in China are reportedly reluctant to increase iron ore stockpiles given the weak demand backdrop,” Commonwealth Bank of Australia said.

“Demand concerns reflect the U.S.-China trade tensions,” including Washington’s recent designation of Beijing as a currency manipulator, the bank said in a note.

Dalian iron ore has plummeted 10% in the last four trading days with signs that a global supply shortage is easing, and waning demand factors from China is fueling the lastest correction.

Stockpiles of iron ore at Chinese ports stopped declining in late June and turned up through July.

Jefferies on Tuesday lowered its ratings on several miners and reduced iron ore’s price targets.

“A slowdown in construction and a decline in Chinese manufacturing and exports due to trade wars would be significant negatives for metals’ demand, even if fiscal/monetary stimulus leads to some recovery in the broader Chinese economy,” the brokerage said in a note.

All it took for iron ore to revert to fundamentals and crash into a bear market was the Chinese yuan moving past seven amid a deepening trade war between the US and China.


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