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(Bloomberg) — Iron ore’s bear market deepened, with prices dropping below $50 a metric ton for the first time since April, on concern that low-cost production from Australia and Brazil will expand further while demand stumbles in China.
“Supply is now outpacing demand, pointing to renewed price pressure,” said Gordon Johnson, an analyst at Wolfe Research LLC in New York. Iron ore may collapse significantly below the $47-a-ton low that was set earlier this year, he said.
Commodities tumbled this week, led by metals, on increased concern that China’s consumption is stalling, and as investors confront the prospect Greece may be ejected from the euro zone. Iron ore’s renewed drop highlights that the same factors of surging supply and weaker demand growth, which dragged prices to the decade-low early April, remain at the forefront. Miners’ shares sank, with Rio Tinto Group at the lowest in two years.
“Key concerns are expanding low-cost supplies from Australia and Brazil, while demand slows from China,” Australia & New Zealand Banking Group Ltd. said in a daily commodities note on Wednesday. “Commodity sentiment is expected to remain weak on Greek uncertainty and falling steel markets in China.”
Iron ore’s nine-day decline was spurred by figures showing inventories at ports in China rebounded, while exports in June from Australia’s Port Hedland were a record. So far this year, prices lost 30 percent, bottoming at $47.08 a ton on April 2.
Iron ore may decline to average $50 this quarter as supply expands, led by mines in Australia, and there are further cuts to steel output, according to Morgan Stanley. The bank is more bullish over the longer term as some high-cost mines may close and the top producers become less competitive in their behavior, analyst Tom Price in London said in a note received on Tuesday.
The slump in prices validated forecasts from banks including Goldman Sachs Group Inc. and UBS Group AG for renewed declines, with Citigroup Inc. predicting prices will drop to less than $40 a ton in the final three months as supplies swell.
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