The 10 per cent fall in prices yesterday is among the first major retreats from surging prices that have driven huge profits for Australian miners in the past year.
Analysts said the fall was due to more pollution restrictions being introduced for steel producers in the Chinese city of Tangshan.
This may mean steel producers require less iron ore.
CMC Markets chief strategist Michael McCarthy said there were many reasons for sudden price fluctuations.
“I’d suggest this (fall in price) was going to happen regardless,” he said.
“The run in iron ore prices has been extraordinary. That means it is vulnerable to sharp pull-backs.”
BHP shaved $1.39 from its share price yesterday to close at $47.60, which was also well down on its recent peak of $50.87 on March 3
BHP, which also runs the Olympic Dam copper, gold, uranium mine in South Australia last month announced a $4.98 billion profit for the half-year to December 31 and a record dividend of $1.30 per share on the back of booming WA iron ore revenues.
SA copper and gold miner was also dragged down, losing 20 cents off its share price yesterday to close at $21.61.
WA-based iron ore giant Fortescue Metals lost 8.3 per cent to close at $20.33 while Rio Tinto lost more than 5.5 per cent to be down $6.72 to close at $114.49 per share.
Iron ore prices are at $US165 per tonne this morning after almost reaching $US175/t last week.
CBA has forecast iron ore prices to remain above $US140 per tonne through the first half of this year. It expects to see a moderate decline back to $US110/t by the end of 2021 as China eases back production.
However, analysts say the $US110 price point is still well above the marginal cost of production.
China brought in 181.5 million tonnes of iron ore in January and February, according to data released by the General Administration of Customs on Sunday.
That’s up from 176.6 million tonnes for the same period a year earlier.
The rise was within analysts’ expectations, as shipments from China’s top two suppliers grew steadily.
Those arrivals from Australia and Brazil rose 11 per cent to 164 million tonnes, Refinitiv vessel-tracking data showed.
The China Iron and Steel Association forecasts steel demand will grow slightly this year, buoying sentiment in the sector.
But the industry ministry had repeatedly urged companies to cut China’s crude steel output this year in line with President Xi Jinping’s goal of carbon neutrality by 2060.
“It remains unclear how the production reduction is going to be implemented,” Zhuo Guiqiu, an analyst with Jinrui Capital, said.
“If crude steel output is really curbed … and taking steel scrap into account, iron ore demand for the whole year could drop.”
Meanwhile, British industrialist Sanjeev Gupta has assured the South Australian government his Whyalla steelworks are in good shape with adequate cash to keep operating despite the collapse of one of his key financiers.
Concerns have been expressed for the future of the 1200 workers at the Whyalla plant, while a similar number of jobs at the nearby iron ore operations could also be in peril if the company faltered.
But Premier Steven Marshall said the government had been briefed by Gupta on both the immediate issues and the longer-term challenges.
“We were assured by Gupta that the immediate cash requirement to continue operating here in South Australia is secure,” Marshall said.
“But obviously there now needs to be a longer-term restructuring of their debt finance.
“Certainly, Sanjeev Gupta was sounding very optimistic.”
In a statement, Gupta’s company GFG Alliance said it remained operationally strong as it benefited from steel prices at a 13-year high and strong markets for aluminium and iron ore.
“Through our global efficiency drive we’ve improved our operations’ margins with most of our major businesses generating positive cash flow,” the company said.
“Discussions to secure alternative long-term funding are progressing well but will take some time to organise.
“While this takes place we have asked all of our businesses to manage cash carefully.”
– with AAP
