Iron demand falls to the wayside

Iron ore prices and shipping costs fell to the lowest levels in five years amid signs China’s slowing growth is sapping demand for cargoes just as the world’s largest mining companies press on with raising output and spur a glut.

The rate to ship the steel-making commodity on a Capesize vessel to Qingdao, China from Tubarao, Brazil slid 4.9% to $11.86 a ton today, the lowest since Jan. 8, 2009, data from the Baltic Exchange in London show. Iron ore delivered to Qingdao fell to $68.05 a ton yesterday, the lowest since June 3, 2009, according to Metal Bulletin Ltd.

Economic growth in the largest steel producer will slow to 7% next year, the lowest in a quarter century, according to economist forecasts in a Bloomberg survey, and customs data this month showed a slump in ore imports in November. The raw material may decline to less than $60 next year as low-cost supplies increase, deepening the glut just as demand growth in China falters, according to Roubini Global Economics LLC.

“December might be even more disappointing,” Alex Gray, chief executive officer of Clarkson Securities Ltd., a unit of the world’s biggest shipbroker, said by phone on Dec. 15, citing his firm’s initial discussions with port agents in Brazil. “The absence of Brazilian volume in the scale we’d anticipated has been the key cause of the Capesize drop.”

Slumping Imports

China imported 67.4 million tons of iron ore in November, down 15% from October, according to customs data. That was the first November decline since 1998, and the only other time that November imports fell since records began was in 1996. Shipments from Brazil, the largest exporter after Australia, fell 18% in November to 26 million tons, the lowest for the time of year since 2010, government data show.

Imports dropped because of stronger domestic iron ore output and inventory destocking, Georgi Slavov, head of basic materials research at Marex Spectron Group Ltd., said by e-mail yesterday. Construction is “particularly weak” in China, he said.

The Baltic Dry Index, a measure of shipping costs for dry goods, fell 1.6% to 814 points today, marking the longest run of declines since August 2012. Brazilian cargoes have a greater impact on freight rates as the country is three times farther from China than Australia. It takes 35 days to ship ore from Brazil to China, according to

The iron ore market needs to absorb a surplus of about 110 million tons next year, almost double the 60 million tons in 2014, Goldman Sachs Group Inc. estimated in October. The bank forecasts a price of $80 next year.

Morgan Stanley lowered its iron ore price forecasts for the next two years as an Australia-led supply surge counters the closure of high-cost mines, according to a Dec. 16 report. The price will average $79 a ton in 2015, down 9% from a previous estimate, and $75 in 2016, down 14%, it said.

Domestic iron ore prices bottomed in China last month and that could translate into a marginal recovery in imports this month, Slavov said.

China’s GDP growth outlook in 2015 was revised down from a 7.3% forecast in March, according to Bloomberg surveys. Data today showed that new-home prices fell on-month in November in 67 out of 70 cities tracked by the country’s statistics bureau, according to a statement on the bureau’s website.

“Whatever happens in China has a profound impact on the economics of steel production and industrial activity globally,” Paul Gait, a London-based research analyst at Sanford C. Bernstein & Co., said by phone on Dec. 16.