Iron Ore Collapses Into a Bear Market

(Bloomberg) -- Iron ore just got hit by an abrupt reversal of fortunes. The commodity that soared in the first half after a supply squeeze is getting pummeled early in the second as the U.S.-China trade war morphs into a currency battle, supplies pick up and signals suggest softening demand.

Futures in Singapore fell -- dropping even after China set its currency fixing stronger than expected -- to reinforce expectations they will join spot prices and the contract in China in a bear market. On Monday, spot ore collapsed to $99.50 a ton, more than 20% lower than the five-year peak last month.

The steel-making commodity has fallen out of favor amid a broader slump in metals as the trade war escalates. The Trump administration formally labeled China a currency manipulator after the country's central bank allowed the yuan to drop beyond a key level on Monday. In addition, iron ore is getting undermined as global supply is expected to improve, mainland port stockpiles are rebounding, and a gauge of mills' profitability has turned negative.

Bulk commodities have been “battered by the rising trade tensions,” Australia & New Zealand Banking Group Ltd. said. The tensions have hit when signs of rising supply are worrying the market, it said, referring to Vale SA's plan to bring back more of the capacity that was suspended after a dam burst.

On the Singapore Exchange, ore for September was 1.2% lower at $94.68 a ton at 2 p.m. -- a close below $95.34 is needed for a loss of more than 20%, the common definition of a shift to a bear market. Miners were mixed in Sydney, with BHP Group lower, Rio Tinto Group flat, and Fortescue Metals Group Ltd. up.

Fortescue Chief Executive Officer Elizabeth Gaines told reporters at a mining forum in Kalgoorlie, Western Australia, on Tuesday that the company sees the potential for demand in China to soften this half compared with the first six months of 2019. “We may find that it's a bit slower in the second half, but it will certainly still be up year-on-year,” Gaines said.

A slump in iron ore back below $100 had been widely flagged by banks and some steel mills, with the focus on expectations for a rebound in seaborne supply after the first-half squeeze. Morgan Stanley has forecast that the raw material will slump to $90 a ton in the fourth quarter.

To contact the reporter on this story: Krystal Chia in Singapore at kchia48@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Jake Lloyd-Smith, Keith Gosman

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