A tale of two gluts: oil and iron ore cross $US50 on opposite paths

From Eddie van der Walt:

Crude oil and iron ore are two of the world’s most important industrial commodities, where supply and demand are tied to the fate of the global economy. Yet, they’re doing very different things right now.

Oil traded above $US50 a barrel for the first time this year while iron, moving in the opposite direction, fell below $US50 a ton on Thursday. It’s a slightly artificial comparison — there’s little physical equivalence between a barrel of oil and a ton of ore — but their differing paths tell us something about how the aftermath of the global commodities crash is playing out in different industries.

…Iron ore has been on a wild ride in 2016 following three years of losses spurred by rising low-cost production. A speculative trading frenzy in China helped to lift prices above $US70 last month from below $US40 in December, but they’ve fallen back on signs that global stockpiles are still building.

Port inventories in China increased 1.6 per cent to 100.45 million tons last week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology Co. They’re up 7.9 per cent this year.

Citigroup Inc. said in a report on Tuesday it remained bearish on iron ore, forecasting persistent oversupply on rising output from the top miners like Brazil’s Vale SA and BHP Billiton Ltd. as well as Gina Rinehart’s Roy Hill project in Australia.

“It takes a long time to turn output in mining on and off; the oil tap is arguably easier to open and close,” Robin Bhar, an analyst at Societe Generale SA in London, said by phone. “There was also a lot more to be done in metals, where demand collapsed. Oil hadn’t experienced a similar collapse.”

Source: A tale of two gluts: oil and iron ore cross $US50 on opposite paths