Everybody but the 'Singapore curve' thinks iron ore is going down
Despite bearish outlook, actual iron ore pricing, both in spot and futures markets, is holding up
It is hard to find any bullish predictions for iron ore prices, with the consensus being that it will drop to below US$100 a tonne. Except this isn't reflected in the financial markets.
The latest bearish signal for iron ore is the decision by an Indian court to allow the mining of 20 million tonnes per annum in the state of Goa, most of which will end up on the export markets.
While this isn't enough ore to cause prices to slump, it adds to the overall growth in supply, which is widely expected to overwhelm growth in demand, especially as top buyer China's economy loses some momentum.
Chinese steel demand growth is likely to moderate, with a flow-on impact to iron ore
But despite the bearish outlook, the actual pricing for iron ore, both in the spot and futures markets, is holding up well.
Asian spot prices were US$113.30 a tonne on Monday, down 15.6 per cent so far this year. But they are up 8.2 per cent from the year-low of US$104.70 on March 10 and 31 per cent above the 2012 low of US$86.70, which was the weakest price for three years.
But more importantly than the spot market, the main paper markets are also showing pricing resilience. The curve for Singapore iron ore swaps has a good track record of pointing to turns in market pricing.
At the time of the 2012 low in September of that year, the curve was fairly strongly in contango -when the current futures price of an asset is higher than the current spot price of the underlying asset - with the nine-month contract trading at a premium of 9.4 per cent to the front-month.