SYDNEY--As China's top officials heralded a new era of slower
growth, iron ore, a resource that has powered years of breakneck
expansion in the world's second-largest economy, bore the brunt of
ill sentiment in commodity markets.
The steelmaking ingredient's value crashed to a six-year low
late Thursday, after China lowered its economic growth forecast,
reigniting concerns about its appetite for the raw material at a
time when supplies are already outpacing demand.
Some of the world's biggest miners, including Rio Tinto PLC and
BHP Billiton Ltd., have been aggressively expanding their
operations in the Pilbara iron-ore mining hub of northwest
Australia, betting that China will still need more of the commodity
to make steel for its skyscrapers and for industries such as auto
manufacturing.
But with China's growth already slowing, their expansion has
resulted in an emerging iron ore glut.
Beijing has now further rattled the market by lowering China's
annual growth forecast to 7%--down from last year's goal of about
7.5%, and actual growth of 7.4%. Chinese leaders are now talking of
a "new normal" for the economy.
The price of iron-ore shipped to China fell 4.5% late Thursday,
to $59.30 a metric ton, according to data provider The Steel Index.
That was the lowest level since March 2009, when it hit $59.10 a
ton.
Steel demand growth in China--which buys three in every five
tons of iron ore traded by sea--last year was already at its
slowest in more than a decade.
Premier Li Keqiang Thursday also vowed to cut industrial
overcapacity and tackle pollution, measures traders worry will damp
demand for iron ore.
"It is coming at a time when there's more and more iron ore
being dug up, " said James Wilson, a Perth-based analyst for
stockbroker Morgans. "A lot of hopes are now pinned on the start of
the construction season in China, with expectations that may help
pick up demand--that could be a saving grace for the industry in
the short-term."
Purchases by steelmakers tend to slow early in the year, as cold
weather and holidays hamper output. From March, demand for iron ore
typically lifts as mills top up their stockpiles and bolster
production of crude metal, analysts say.
Many other commodities escaped a pummeling from China's weaker
economic forecast. Industrial metal copper held its ground as
traders overlooked worries about China, and focused instead on
potential supply disruptions in key mining regions, including the
impact of a drought in Chile, analysts said.
There is also less concern that China's demand for copper would
fade. Its Ministry of Finance Thursday said it would spend 154.6
billion yuan ($24.7 billion) this year to build up reserves of
grains, edible oils and what it termed "other materials'--which
could include copper and oil.
Iron ore is relatively more vulnerable to a near-term slowing in
Chinese growth, because it is a so-called early-cycle
commodity--used heavily when an economy is expanding quickly.
As a developing economy like China's becomes less reliant on
infrastructure investment and more focused on consumer goods and
services, demand tends to switch to commodities like copper, used
in electronics, and energy resources, to power homes.
Australian mining stocks suffered Friday following iron ore's
tumble. The commodity is Australia's largest export.
Rio fell 1.2% in Sydney, and BHP lost 1.6%. Fortescue Metals
Group Ltd. plunged 6.1%, as analysts fretted over how it would pay
down a multibillion-dollar debt pile at current prices, even after
it announced a loan restructuring earlier this week.
Iron-ore miners have been laying off workers and slashing costs
as they grapple with lower prices. Several hundred jobs will be cut
from Rio's iron-ore business in Western Australia as executives
deepen a cost-cutting and productivity drive, a person familiar
with the matter said.
Still, analysts don't expect Australia's miners to curb
production, particularly as a weaker Australian dollar is helping
cushion them from the impact of falling prices.
"You don't need to cut production when you are low cost and
making reasonable margins," said Morgans' Mr. Wilson. "It is still
good times for these guys."
The plunge in iron-ore prices is roiling smaller miners in
places such as India, which was the world's third largest exporter
of the resource until three years ago.
"Our exports have completely dried up," says Basant Poddar, vice
chairman of Federation of Indian Mineral Industries. India used to
export around 100 million tons of iron ore, but its exports in the
financial year ending March are likely to be only around a couple
of million tons, said Mr. Poddar, adding that exports have
virtually halted since December.
Biman Mukherji in Hong Kong contributed to this article.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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