Iron ore trades below $40/tonne on weaker fundamentals

Monday, November 30, 2015

Iron ore prices slipped below $40/tonne on Monday after facing considerable headwinds last week. The front month Asiaclear TSI 62% Fe CFR China contract traded sharply lower during the Asian session, trading at a low of $37.31/tonne before partially recovering back towards $39.60/tonne as we approached the European session. Prices for the steelmaking raw material have come under considerable pressure throughout the year as major mining groups see a glut of material enter the market after years of substantial capex spending. However, lacklustre Chinese demand as the economy cools and attempts to transition to a consumer led economy has seen the iron ore supply glut build steadily, and after some destocking during the first half of the year Chinese port stocks of iron ore have increased for three consecutive months, currently standing at 87.65m tonnes, a six and a half month high.

Three month LME copper prices look to be heading lower today as the red metal trades under pressure early on, failing to capitalise on last week’s late gains. Having touched an intraday high of $4,741/tonne on Thursday as speculation that Chinese regulators would look to launch a probe on short selling it seems the initial optimism has quickly faded and prices pared these gains on Friday with the weaker sentiment spilling over to the start of this week. Copper prices struggled to hold onto $4,600/tonne at the open and have since slipped back towards $4,570/tonne after hitting a low of $4,530/tonne. While investors were initially encouraged by the expectations of capacity cuts the recent reversal suggests further production cuts would be needed before market participants are convinced that the prospects for copper and indeed the other base metals are starting to improve.   

The euro is set for its worst monthly performance since March as a growing number of economists expect the ECB to announce additional stimulus efforts at this week’s meeting. While the consensus among market participants is for the main refinancing rate to be left unchanged at 0.05% most now expect the deposit facility rate to be cut from -0.2% to -0.3%. The euro sank to a seven month low last week, trading towards 1.0566 against the dollar and it seems downward pressure is set to dominate this week’s trading activity. With the expectations of a rates rise in the US the dollar will likely continue seeing strong demand coming at a cost to the euro as the monetary policies of the US Fed and ECB continue to diverge.     

Iron ore stocks at Chinese ports continue to rise

SIVCTOTL Index Steelhome China 2015 11 30 08 07 53

Three month copper gives back recent gains

LMCADS03 Comdty LME COPPER 3 2015 11 30 08 14 10

EUR trades under considerable pressure against USD in November

EUR Curncy Euro Spot Daily 30 2015 11 30 08 14 36

Events for today

0001

UK

Nov

GfK Consumer Confidence

1000

EZ

Oct

Unemployment Rate

1000

EZ

Nov

CPI Core

1445

US

Nov

Chicago PMI

1500

US

Oct

Pending Home Sales

1530

US

Nov

Midwest Manufacturing

Topics: Copper, US Fed, USD, ECB, EUR, Iron Ore, LME
More from: Kash Kamal