Iron ore plunged more than 7% in Singapore – giving up all of its gains this year – as steel mills idled their blast furnaces amid growing pessimism about the outlook for demand in China.
The steel ingredient has now lost around a fifth of its value in a series of declines that have extended into an eighth day. Chinese metallurgical coal prices, used to make steel, have dropped from 12% to the lowest since the end of February.
Iron ore consumption has been hit by the collapse of China’s property market and the country’s failure to put the coronavirus behind it. While there was some optimism last month that a slowdown in the current outbreaks would spur a rapid rebound in economic activity, that appears to have been replaced by the realities of regular mass testing and the constant threat more blockages.
Blast furnace prices in Tangshan fell last week for the first time since mid-May, with industry consultant Mysteel saying in a note that more factories in the steel hub were cutting production to carry out maintenance due to low margins. A Chinese steel earnings index has fallen nearly 90% so far this month.
“As the spot trade slowed, prices for steel products fell, with more and more steel mills losing money and accelerating planned maintenance,” said Wei Ying, ferrous analyst at China Industrial Futures. However, given the speed of the decline, iron ore “may have been oversold” and there will likely be a rebound in the second half, she said.
Daily spot trading of construction-related steel products is currently around 11 to 13 million tons, compared with the usual 17 to 19 million tons, Wei said.
Downstream demand remains weak with few spot transactions, and the gloomy outlook for China’s construction industry continues to test market confidence, Mysteel said in a separate note. A series of supportive policy moves by Beijing over the past two months have failed to yield persistent price gains as risks from the virus and the Covid Zero policy continue to weigh on the market.
Chinese steel mills have been ramping up production since late last year and seem to be betting that the infrastructure boost and a rapid rebound in property construction will support demand in the coming months, GavekalDragonomics said in an analyst note. Rosealea Yao lundi. Unless the real estate sector experiences a stronger rebound soon – which remains far from certain – the tension between high production and weak demand will have to be resolved with lower prices, sharp production cuts, or Both she said.
Iron ore fell 7.4% to $111.20 a tonne as of 4:16 p.m. in Singapore. Futures in Dalian fell 8.3% and steel rebar and hot rolled coil both fell around 5%. Chinese coking coal futures fell 7.1% to 2,414.5 yuan a ton.