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Iron ore drops as speculators rethink demand outlook
Source:Sydney Morning Herald   Time:2017-05-31 17:10:41

The spot price of iron ore has again dipped below $US60, with National Australia Bank warning that volatility risk has again risen in the market.

Ore with 62 per cent content shed 3.9 per cent to $US57.91 a tonne on Friday ahead of a long weekend in China, according to Metal Bulletin, taking the loss across last week to 8.4 per cent.

Prices have been a bit more volatile than usual in recent weeks, reflecting sharp rises and falls in both Chinese steel and iron ore futures amid mixed assessments on demand for steel, steel inventories and ore inventories.

The most-active iron ore contract on the Dalian Commodity Exchange closed down 0.7 per cent at 454 yuan ($US66) a tonne on Friday, and dropped about 5 per cent last week.

After unexpectedly surging as high as $US94.86 a tonne on February 21, iron ore has retreated to levels more in line market and government forecasts. The earlier surge was linked to strong demand for higher-grade ore from Chinese steel mills as they pressed output in anticipation of a spring construction spree.

In an updated Minerals & Energy Outlook released last week, NAB economists said the upward trend in iron ore prices between October 2016 and February 2017 came with little apparent speculative pressure.

However, increasing bets from speculators from late February through mid-May "appears to be driving prices at the present time and increases the risk of price volatility in the short term", NAB said.

NAB said it expects steel demand in China, which is the world's largest consumer, to ease in coming months as construction activity slows. In addition, recent steel-related trade disputes with the US and Europe have dented export demand. China's steel association has tipped a fall in demand there in coming years as the pace of overall economic growth slows.

"Weaker prospects for Chinese steel producers from domestic and international markets should limit upside pressure to iron ore spot prices, while cost profiles for iron ore producers are likely to constrain the downside.

"We forecast a relatively flat profile for prices – trending around $US60 a tonne across the second half of 2017 and 2018," NAB said.

Stockpiles of imported iron ore at China's ports reached 136 million tonnes last week, the most since 2004, according to SteelHome consultancy. That compares with about 80 million tonnes in mid-2015.

BMI Research has cut its iron ore price estimates, to $US65 in 2017 from $US70 previously and to $US50 in 2018 from $US55.

BMI said it anticipates the "Chinese government's fiscal support to the infrastructure and construction sectors will cool off earlier in 2017 than we previously expected".

The most-active rebar trade on the Shanghai Futures Exchange ended 0.4 per cent lower at 3240 yuan a tonne on Friday, declining for a fourth day in a row.

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