Iron ore prices struggle to keep above $40/tonne as stockpiles rise

Monday, January 18, 2016

Spot iron ore prices stabilised above $40/tonne last week as the steelmaking raw material faced another week of under pressure prices. The TSI 62% Fe CFR Tianjin benchmark index ended the week at $40.20/tonne after slipping briefly towards $39/tonne midweek, tracking a softer steel futures market lower amid expectations of slow buying ahead of the Chinese New Year. Steel demand in China is expected to drop significantly throughout 2016 as the industry wrestles with excess capacity and sluggish demand. Iron ore port stocks have been rising steadily since last summer and currently stand at 94.55m tonnes according to data compiled by Steelhome. We expect stockpiles to maintain this upward trajectory ahead of the week long New Year holiday at the start of February with inventories likely to top out around 100m tonnes before restocking from mills draws down the glut. However, given the overall depressed market outlook we do not anticipate a protracted recovery in spot iron ore prices.

Front month Brent futures slipped to a fresh multi-year low on Friday as the bears dominated the entire session, pushing the global crude benchmark as low as $28.82/bbl. Expectations of Iranian crude exports making a swift return to the global market dragged prices lower and with the international sanctions finally being lifted after the UN nuclear watchdog confirmed that Iran had met the requirements for its nuclear programme the outlook for crude will likely remain under pressure throughout 2016. Activity early this morning has seen an extension of declines with Brent futures trading around $28.50/bbl after briefly slipping towards $27.70 overnight, a level last reached in November 2003.

A quiet session for economic data today and with a US market holiday for Martin Luther King Jr. Day we anticipate a relatively subdued European session. Tomorrow sees the release of Q4 2015 GDP data in China and investors will be eager to see if the significant intervention from Beijing throughout the year and indeed during the fourth quarter will have had the desired impact on growth. GDP growth is expected to hold firm at 6.9% y/y but a keen eye will be on December data for fixed asset investment, industrial output and retail sales.  

Iron ore port stocks in China continue to build

SIVCTOTL Index Steelhome China 2016 01 18 08 15 39

Front month Brent futures briefly swing below $28/bbl 

CO1 Comdty Generic 1St CO Fut 2016 01 18 08 29 21

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