The price of iron ore has seen a massive drop after Chinese demand for steel continues to fall.
The price dropped by 4.3% to $87.59 US a tonne overnight, the biggest percentage drop in 2017 so far . This recent fall extends the losses from earlier in the week to over 7%. This also the first time the price has dropped below $90 US a tonne since February.
A number of mining companies have seen their stock prices suffer due to these iron ore price falls. Rio Tinto saw a share price drop of 2.6% to $60.06, Fortescue’s share price dropped 5% to $6.28, and BHP Billiton’s shares dropped by 2.5% to $24.05.
According to Macquarie Bank, the drops in the price are due in large part to the rising Chinese port inventories.
“Now that the Chinese New Year holidays are over, iron ore supply is abundant. Indeed, before the holidays, iron ore inventory at mills had surged to highs not seen since early-2013, while port inventory is back at record highs seen in 2014.”
Macquarie went on to say that supply has been outstripping demand.
“Full-year Chinese trade data shows the scale and origin of the supply response from the seaborne iron ore market. China’s total iron ore imports rose 71mt, or 7.5 per cent, to 1.025 billion tonnes, while we estimate iron ore consumption rose by less than 1 per cent last year,” said a representative for the Bank.
A number of groups have been forecasting a price drop, including RBC Capital Markets.
“We believe iron ore prices are not sustainable at current levels and expect a pullback in 2017,” said RBC Capital Markets analysts in a report released in January.
The price is expected to reach a low of $50 US a tonne by the second half of this year.