Mirroring the movements in Chinese futures, which finished limit down 6%, the spot iron ore price copped another pasting on Tuesday, falling heavily for the second time in three trading sessions.
According to Metal Bulletin, the spot price for 62% fines fell by 5%, or $3.29, to $62.78 a tonne, taking its decline from the multi-year peak of $70.46 a tonne struck last Thursday to 10.9%.
As a result of the recent weakness, the year to date gain has been trimmed to 44.1%. The price is now back to where it was trading this time last week.
Indicating that the losses in the spot price may continue on Wednesday, Chinese iron ore, rebar and coking coal futures all fell by more than 1% in overnight trade.
Should those losses be sustained or built upon during today’s day session — beginning at 11am AEST — recent history points to the likelihood that the spot iron ore price will follow suit.
Although increased margins and fees for commodity futures trading have likely contributed to the recent weakness — limiting speculative forces that grew to rampant levels last week — the steep decline in the spot iron ore price coincided with news that China’s top steel making province, Hebei, will ban the reopening of steel mills that had been previously ordered to shut down.
According to Reuters, citing a story from Chinese state-run news wire Xinhua, officials from Hebei told operators that they were not allowed to restart production “under any circumstances”.
Provincial authorities also pledged to step up monitoring of steel mills, punish closed mills that reopen and investigate and sack local officials who allow the reopening of mills and approve illegal projects, the Xinhua report stated.
Hebei accounts for just under 25% of all steel production in China, likely making the province the steel making capital of the world.
Although this order from the Chinese government should support steel prices, the news created negative sentiment across the sector, likely contributing the severe losses in bulk commodity prices, particularly iron ore.
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