[Ferro-Alloys.com]Iron ore sagged again, fulfilling widespread expectations that a bust would follow a brief boom as a trading frenzy in China unwound and swelling inventories revived concerns about oversupply.

The SGX AsiaClear contract for June settlement sank as much as 2.3 per cent to $US49.85 a tonne in Singapore, the lowest since March 16, and traded at $US51.25 at 3.20pm local time. In Dalian, iron ore futures closed 0.6 per cent lower as steel in Shanghai tumbled for the fifth time in six days. In Sydney, BHP Billiton, Rio Tinto Group and Fortescue Metals Group all fell.

Iron ore soared in April after Chinese investors dived into raw-material futures, spurring forecasts that the excessive enthusiasm would prove too much for fundamentals to justify. After Chinese authorities introduced trading curbs in local markets, benchmark spot prices from Metal Bulletin lost 22 per cent in less than three weeks. Recent data show rising holdings of iron ore at ports in China and of inventories of reinforcement bar.

"It was inevitable that prices would drop," Philip Kirchlechner, director of Iron Ore Research in Perth, said by e-mail. Even when this new rising trend started after Chinese New Year, "some industry observers and mills were a bit incredulous, saying 'cannot be sustained.' And yet it kept rising," he said.

 

Among those that foresaw a retracement, Goldman Sachs said on April 22 that the rally was unsustainable, and a tight steel market in China was a "temporary distraction from iron ore fundamentals". A few days later, Fitch Ratings said the surge in steel prices wouldn't last. And at the end of the month, Itau Unibanco Holding's Artur Manoel Passos said iron would soon drop by $US10, describing the speculation as a short-term issue.

Miners' shares slumped in Sydney. BHP Billiton, the world's largest mining company, fell 3.2 per cent, while Rio Tinto declined 2.9 per cent and Fortescue lost 6.3 per cent. On Monday, the Metal Bulletin iron ore price tumbled 5.7 per cent to $US54.99 a tonne after sinking 12 per cent last week.

Stockpiles of ore held at ports across China rose 1.4 per cent to 99.85 million tons last week, the highest since March 2015, according to Shanghai Steelhome Information Technology Co. Rebar inventories have risen 1.1 per cent to 4.22 million tons, snapping eight weeks of losses, Steelhome data showed.

"Weakened sentiment in the steel industry has greatly suppressed iron ore," said Zhou Bo, an analyst at Everbright Futures. "A marked increase in steel inventories has weighed on the market, while the wait-and-see attitude among downstream users is still strong."