China's pollution is so bad it's putting pressure on the iron ore price

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In what is now becoming close to a daily occurrence, the spot iron ore price fell to yet another all-time record low overnight.

According to Metal Bulletin, the spot price for benchmark 62% fines fell by a further 73 cents, or $1.70, to $42.24 a tonne on Tuesday, leaving the year-to-date decline at 40.7%.

While weak steel demand and an abundance of supply has kept prices under pressure this year, analysts at Metal Bulletin suggest on this occasion it was heavy pollution in and around Beijing that weighed on prices.

Here’s Metal Bulletin:

Heavy smog levels in north China have been putting more pressure on iron ore market sentiment today. In Beijing, the government has ordered over 2,100 industrial enterprises to either limit or halt production due to serious haze on November 29, which led it to upgrade its air pollution alert from yellow to orange, the second-highest level of warning and its most severe this year. The main iron ore ports in the northern regions – Jingtang, Caofeidian, and Tianjin – were all closed during the day, with ships unable to berth due to poor visibility. Most construction sites in Beijing also had to be suspended due to the poor air quality, with visibility dropping to no more than 200 metres in the city, according to iron ore traders based there.

Alongside adverse weather conditions in China’s north, the continued slide also corresponded with the release of a dire China steel PMI report for November on Tuesday.

According to the China Federation of Logistics and Purchasing, activity levels across China’s steel industry collapsed in November with the steel industry PMI gauge plummeting 5.2 points to 37.0, well below the 50 level that separates expansion from contraction.

New domestic orders fell to just 29.7, well below the already-ugly 37.9 level of October, while overall output skidded to 35.4, again well short of the 43.1 level seen just one month earlier.

Pointing to the likelihood anther steep decline in the iron ore spot price later on this evening, near-dated Chinese iron ore futures were pummelled yet again in overnight trade with the January 2016 contract on the Dalian Commodities Exchange tumbling by 2.33% to 315 yuan.

While the more actively traded May 2016 contract eked out a small gain of 0.68%, spot price movements are driven by near-dated futures contracts, suggesting the spot price may come under further pressure on Wednesday should futures not reverse their overnight declines during today’s day session.

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