Iron Ore Seen Set for Bear Market After Restocking Rally Fades

Iron ore, which posted the biggest quarterly gain on record in the final three months of 2012, may extend gains from a 14-month high as Chinese mills restock, then tumble into a bear market, according to Deutsche Bank AG.

Prices may gain to $170 a ton in the first half on demand in the biggest buyer, before falling to less than $120 as supply expands, Deutsche Bank said in a report. Ore with 62 percent content delivered to Tianjin rose to $158.50 a dry ton 8 January, the highest since October 2011, according to data from The Steel Index Ltd. A drop from $170 to $120 implies a 29 percent fall, more than the 20 percent that typically defines a bear market.

The steelmaking raw material rallied 39 percent in the three months through December, the biggest gain since at least 2009, as demand in China rebounded on optimism the world’s second-largest economy is recovering. Gross domestic product is poised to expand 8.1 percent this year, from 7.7 percent in 2012. Baoshan Iron & Steel Co. (600019), China’s largest steelmaker, said on Jan. 7 that it will raise product prices.

Baoshan Iron & Steel said on Jan. 7 that it will raise hot- rolled product prices by 160 yuan per ton for February delivery. Jiangsu Shagang Co. raised its rebar prices Jan. 1, according to Shenyin Wanguo Futures Co. Further increases in Chinese steel prices are needed to sustain iron ore above $150 a ton, Commonwealth Bank of Australia said on 8 January.

Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin port moisture can account for 8 percent to 10 percent of the ore’s weight.