Iron ore edges lower as analysts warn of G20 impact on prices

The iron ore price has inched lower, as Morgan Stanley warns of a rocky ride ahead for the commodity.

Workers rest on a barge full of steel wires docked at a steel stockyard in China.

The iron ore price has inched lower but remains close to its recent peaks after a fresh warning that the commodity could be in for more short-term volatility.

Iron ore fell 0.2 per cent to $US61.50 overnight, according to The Steel Index, from $US61.60 the previous day.

Morgan Stanley analysts are considering the effect on the commodity of the G20 Summit, which will be held in Hangzhou in China on September 4 and 5.

“Common practice ahead of international events, China’s local governments will impose a number of restrictions on several industries to help improve air quality in the region — including the suspension of most construction activities; restrictions on ore sintering, cement, petrochemical and coke production,” Morgan Stanley said in a research note.

Last month, the province of Hebei restricted steel output, which sparked a short-term jump in steel prices.

Morgan Stanley expects the impact of the new restrictions to have a minimal effect on Chinese steel production over the year, but said there could be some sudden trading moves.

“In the very short-term, it could create some trade and price volatility for steel’s raw materials — iron ore, met-coals, coke. For example, some mills may take the opportunity to start maintenance; on pervious events, easing of competitive tension at ports alone undermined prices.

“Given that China’s construction activity eases over September-October, this event may act as a catalyst for a sell-off,” Morgan Stanley concluded.

Predictions of a sell-off have been made regularly over the last several months and are yet to materialise, with iron ore hovering below a three-and-a-half month high of $US61.80 it reached last week.

Several analysts expect a significant fall in prices over this year and next as demand fails to keep pace with supply, but the commodity has so far remained defiant on the back of Chinese stimulus spending and speculation.

In London trade, BHP Billiton shares fell 2.5 per cent, while Rio Tinto also lost 2.5 per cent.