MINERS betting on a heavy round of iron ore restocking by Chinese steel producers late in 2014, after a 40 percent price slump this year, may be disappointed as a reform-driven government sacrifices growth, leaving the market drowning in supply.

    A toxic combination of bountiful supply and slower demand growth in top importer China have hammered iron ore prices to five-year lows, the hardest hit among industrial commodities this year. Prices slid this week below US$80 a ton for the first time since 2009.

    In the last quarter of 2012 iron ore staged a 39 percent recovery from that year’s price rout when Chinese mills restocked heavily. But his time around, mills may not rescue prices.

    “The tension in the market isn’t there to want to go and sit on 60 days worth of stockpiles because in 60 days it might be cheaper. There’s no real urgency to rush out and build a stockpile,” said James Wilson, analyst at Morgans in Perth.

    “It’s become a hand-to-mouth kind of stocking.”

    A restructuring in China’s economy has reduced business confidence and the country’s demand for steel and iron ore, Nev Power, chief executive of world No. 4 iron ore miner Fortescue Metals Group said at a conference in Melbourne on Tuesday.

    Small Chinese steel producers have kept iron ore stocks at as short as a week to 10 days, said a trader in China’s eastern Shandong Province who sells to the mills, as the increased volatility in prices has prompted mills to manage inventories.

    Stockpiles of imported iron ore across China’s ports stood at 112.35 million tons last week, according to data tracker SteelHome. That is not far below a record high of 113.7 million tons reached in July.

    The mountain of port inventory, up 30 percent this year, shows how well supplied China is with ore and how slow the rate of consumption has been despite imports surging this year.

    China imported 77 million tons a month on average this year, nearly 10 million tons more than in 2013, based on the country’s customs data.

    The import spike largely reflects the increase in shipments to China by top suppliers such as Australia and Brazil as some high-cost Chinese mines were shut out by the price plunge.

    But while a large number of small Chinese mines have been forced to close, domestic output is increasing as the big State-backed producers expand or consolidate.

    Surrounded by plentiful supply, many Chinese buyers are more selective and in no rush to buy, even ahead of a week-long National Day break in October — a traditional buying period.

    “This shows that they are very particular about the sort of prices and not all that desperate to buy, and they are shopping around for deals,” said the head of a big Beijing-based iron ore trading firm which supplies major steel mills.

    “I wouldn’t be surprised if we see prices down at US$70 by the end of the year. The market is going to stay very soft.”

    The lack of strong restocking appetite is likely to continue through the winter months, traders said, suggesting there is unlikely to be a sharp rise in China’s iron ore imports even when domestic mines are shut due to the cold weather.

    (SD-Agencies)