Iran Steel Service Center- Spot iron ore prices fell to hit a fresh 5-year low on Wednesday
as the market's deep supply glut continued to dent buying appetite, prompting
Goldman Sachs to warn the commodity has entered a new phase.
"In our view, 2014 is the
inflection point where new production capacity finally catches up with demand
growth, and profit margins begin their reversion to the historical mean; in
other words, the end of the Iron Age is here," Goldman analysts Christian
Lelong and Amber Cai said in a report on Wednesday.
Iron ore for immediate delivery to
China .IO62-CNI=SI dropped 1.2 percent to $82.20 a tonne on Wednesday,
according to data provider Steel Index, which said the market was thin on
transactions as sellers struggled to find bids.
That was the lowest price for iron
ore since September 2009, and brought losses for the year to 39 percent.
Benchmark steel and iron ore
futures in China closed well off historic lows on Wednesday, and Singapore iron
ore prices rebounded as buyers emerged after a sell-off, though the gains were
not expected to hold.
Iron ore for January delivery on
the Dalian Commodity Exchange closed 0.2 percent higher at 590 yuan ($96) a
tonne after falling more than 3 percent to a contract low of 570 yuan earlier.
The October iron ore contract on
the Singapore Exchange jumped 1.1 percent to $83.33 a tonne.
China's railway investment in the
first eight months of 2014 rose 20 percent to exceed 405 billion yuan and is on
track to meet its 2014 target, the state-owned Shanghai Securities News
reported on Wednesday.
Still, growth in supply from
low-cost global miners is outstripping the increase in demand from top buyer
China, putting pressure on iron ore prices.
GOLDMAN CUTS FORECASTS
Sam Walsh, chief executive of Rio Tinto , the world's
second-biggest iron ore producer, said he expects other miners to cut 125
million tonnes of iron ore capacity this year as prices slide.
Goldman sees around 110 million tonnes of global iron ore
capacity closing in 2015 and another 75 million tonnes in 2016.
"Mine closures will impact Chinese and seaborne
producers alike, resulting in a gradual decline in domestic Chinese
production," the Goldman analysts said.
The investment bank kept its 2015 iron ore price forecast at
$80 a tonne, but slashed its 2016 estimate by 4 percent to $79 and its 2017
projection by 8 percent to $78.
It was mostly a sustained rout for iron ore since the
commodity fell below $100 on May 19. China, which buys around two-thirds of the
world's iron ore, imported 74.88 million tonnes in August, 9 percent less from
July.
"We're not buying now and we'll only probably enter the
market again when the price hits $70-$75," said an iron ore trader in
China's eastern Shandong province, who has 200,000 tonnes of stocks bought at
higher prices.
Weaker Chinese steel prices and tighter credit have also
weighed on the market.
The most-traded rebar for delivery in January on the Shanghai
Futures Exchange dropped to a record low of 2,725 yuan a tonne, before paring
losses to end at 2,780, down 0.6 percent.
"With no end in sight for Chinese steel price falls and
banks reluctant to lend to mills, cash flow has started to become a real issue
for many producers, impacting their ability to procure raw materials,"
Steel Index said in a monthly report.
Source: reuters