Iron ore at fresh 5-month low

Iron ore’s price tumbles as investors appear confident that Chinese restocking moves may be complete.

A bulk carrier at the Yangshan deepwater port near Shanghai. Pic: Bloomberg

The price of iron ore has struck a fresh five-month low as investors appear confident major restocking moves pinned to Chinese stimulus may be complete.

In the latest session, the commodity tumbled 3.7 per cent, or $US2.50, to $US64.60 a tonne, according to The Steel Index.

It represents the lowest mark for the commodity since November 3 and is a far cry from the 2.5-year peak of $US94.50 reached on February 21.

Australia’s key export has lost 15 per cent in April alone as traders fear major restocking efforts that took Chinese port inventories to record highs could be behind us.

There are signs that demand growth is starting to wane after a strong start to the year, while traders are conscious recent high prices have likely encouraged some marginal product back to the market.

Also lingering on the horizon are major expansions planned by heavyweights Vale, BHP Billiton and Rio Tinto.

The latest slide in ore prices comes after a warning from Fortescue boss Nev Power last week that recent prices above $US80 a tonne were unsustainable.

“I don’t think anybody should be surprised to see the iron ore price come back to more sustainable levels,” he said.

“I think we will see the iron ore price to return to where you’d expect it to be based on the supply curve, which is around that $60 to $65 per tonne mark historically.”

It also follows on the heels of better-than-expected growth numbers out of China. On the surface that would appear good news, but traders have instead tagged it as a negative as it may mean tighter policy in coming months.

“The wash-up we are left with is that Chinese traders are sensing tighter liquidity through the increased costs of borrowing from the central bank for short and medium-term loans,” IG chief market strategist Chris Weston said.

“We can deduce that good news in China is now taken firmly as bad news by markets, on the idea of tighter financial conditions.

“The prospect that we have seen peak positive growth in China is in play and the growth rate should gradually move lower from here.”