The iron ore price fell with a thud on Tuesday, extending its losing streak into a sixth consecutive session.
According to pricing from TSI, the spot price for benchmark 62% fines fell by 2.2%, or 90 cents, to $40.00 a tonne.
After an epic winning streak that stretched between December 14 to January 4, leaving the price up 16.5% from the record low level of $37 a tonne set on December 11, the benchmark price has now lost 7.2% over the past six trading sessions.
Providing no clue as to whether the losing streak will extend into a seventh session, the most actively traded iron ore futures contract on the Dalian Commodities Exchange finished flat in overnight trade.
According to Daniel Hynes and Anurag Soin, commodity strategists at ANZ, the benchmark spot price is likely to slide further in the weeks ahead as temporary tightness in the Chinese steel market, helping to underpin the rally in iron ore in late December, dissipates.
The chart below, supplied by Hynes and Soin, reveals the relationship between Chinese steel prices and benchmark iron ore.
Here’s why they believe the iron ore price will remain under pressure in the period ahead.
We believe inventory levels will rebound strongly after the third week of February (post the Chinese New Year), once steel mills return to normal production rates. Weak domestic demand and rising trade barriers will further aggravate the demand situation and reduce the buying interest in iron ore.
This should see iron ore prices test the recent low. In fact, we expect prices to remain weak throughout Q1 2016, ranging between USD35-40/tonne. However, the probability of prices breaking below this range in the short term is rising daily.
$35 to $40 a tonne over the next three months, with risks for a break below this range building by the day.
Not exactly positive news for iron ore producers, nor the Federal budget which is constructed on expectations that the price will average $39 a tonne, excluding freight costs, over the 2015/16 fiscal year.