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Iron ore back above $70, but outlook shaky

Iron ore recovered to trade above $70 a tonne after a drop to 5-1/2-year lows encouraged some buyers of spot cargoes in China, although the longer-term outlook for the commodity remains hazy amid a supply glut and weak Chinese property sector.
“It is difficult to identify any factors that are supportive of iron ore prices in the near term,” Atul Lele, chief investment officer at investment firm Deltec International Group, said in a report.
“While recent Chinese monetary stimulus should be welcomed, the question remains as to whether it will be supportive of property markets and iron ore prices. And even then, supportive, rather than stimulatory, is the most likely outcome at this stage,” Lele said.
Deltec estimates the property sector accounts for around 40 percent of China’s steel consumption.
China’s interest rate cut on Nov. 21 was unlikely to be a big lift to domestic property developers as sales slip and banks rein in lending to the sector.
Benchmark 62-percent grade iron ore for delivery to China’s Tianjin port .IO62-CNI=SI rose more than 1 percent to $70.60 a tonne on Monday, according to data compiled by the Steel Index.
The steelmaking commodity fell to $68 last week, its weakest since June 2009.
A supply glut stoked by big, low-cost miners that boosted output at a time when the Chinese economy was slowing has slashed iron ore prices by more than 47 percent this year.
“Iron ore has experienced significant cyclical declines to date, however more permanent structural declines are likely as we move into 2015,” said Lele.
Iron ore futures in China and Singapore rose on Tuesday, although prices have come off session highs.
Source: Reuters (Editing by Himani Sarkar)