Iron Ore Seen Less Volatile on Europe Optimism, Austock Says

Spot iron ore, at a six-week high, may see less volatility this month on optimism that Europe’s economic prospects may improve, Austock Securities Ltd.’s Michael Heffernan said.

“In the last month or so, the price has stabilized,” Heffernan, a Melbourne-based client adviser with Austock, said in a phone interview today. “There won’t be significant moves. The trend of the price may gradually ease down, but it won’t fall off a cliff.”

European governments are in talks to resolve the euro-area debt crisis, with German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday saying leaders may complete work on their fiscal compact by Jan. 30, one month ahead of schedule. Coordination between the European Central Bank and governments suggests Europe’s sovereign-debt situation will improve, Mohit Kumar, head of European interest-rate strategy at Deutsche Bank AG in London, said yesterday.

“Europe seems to be settling down and the worst is behind it, so the flow on effects to China should see less volatility,” Heffernan said. “China will still perform well economically and will be stable, so I don’t think we’ll see iron ore prices either shoot through the roof or collapse.”

Iron ore with 62 percent content delivered to the port of Tianjin traded at $140 a metric ton yesterday, unchanged from Jan. 6 which was the highest price since Nov. 25, data from The Steel Index Ltd. showed. Prices tumbled 31 percent in October in the biggest monthly loss since December 2008, before rebounding 11 percent in November.

China’s steel output has dropped for six straight months, falling to 49.8 million tons in November, according to data from the World Steel Association. The cost of hauling iron ore and coal fell to a four-month low, extending this year’s decline to 47 percent, amid concerns a slowdown in China will curb steel production, the biggest driver of global shipping demand.

Still, China’s steel industry may rebound faster than in other regions, which will be positive for iron ore and coal because of the nation’s dependence on imports, Credit Suisse Group AG said in a Jan. 5 report.