SINGAPORE: BHP Billiton, the world’s No. 3 iron ore miner, bought 100,000 tonnes of the raw material on the spot market in a rare move that traders interpreted as a strategy by producers themselves to stem a decline in prices as Chinese demand thins.
A rally that carried iron ore prices to 15-month highs last week was a boon for miners such as BHP, but took the market by surprise, scaring off buyers in top consumer China.
That in turn set off a slide in prices from late last week.
BHP bought the cargo on Wednesday, when iron ore prices slumped nearly 5 per cent, the most in nearly 14 months. The shipment of 62-per cent grade Australian iron ore fines for February delivery was bought at $145.50 a tonne via the GlobalOre trading platform, traders said.
“This is very unusual. Maybe BHP wants to support prices, because there’s no reason for it to buy the cargo, it’s a producer,” said an iron ore physical trader in Shanghai.
The fact that the cargo is not for immediate delivery adds weight to the argument that BHP wants to support prices, traders said, although some market participants believe BHP’s move may be due to supply issues.
“I think it’s more because BHP sold many cargoes earlier at high prices and now it doesn’t have enough to supply, so they bought back from the market to meet their orders,” said another trader in Shanghai. It was not immediately clear when BHP, which usually sells iron ore, last bought a cargo off the spot market. BHP declined to comment on the transaction.
“It is very normal for industry participants (steel mills, traders and producers) to both buy and sell cargo to balance their books,” a spokeswoman for BHP told Reuters in an email.
Benchmark iron ore with 62 per cent iron content slid 4.9 per cent to $145.40 a tonne on Wednesday, in its steepest single-day drop since Nov.28 2011, Steel Index data shows.
Prices have fallen more than 8 per cent since reaching $158.50 last week, the loftiest level since October 2011.
At last week’s peak, iron ore prices were up more than 80 per cent from three-year lows hit in September as Chinese mills restocked aggressively on optimism a mending economy will buoy demand for steel in the world’s top consumer.
But the buying momentum slowed from last on Thursday, after mills deemed iron ore prices had become too high, bloating their costs, with steel prices not rising as much.
BHP plans to lift its annual iron ore output to 240 million tonnes by 2016, an increase of 56 per cent from 2011, hoping China’s economic strength and continuing urbanisation will keep the country’s demand for the steelmaking ingredient buoyant.