Iron ore is weaker as Chinese property investment cools

David Butow/Corbis via Getty Images

Iron ore markets continued to weaken on Monday, although the losses weren’t to the same scale seen on Friday.

However, with Chinese rebar and iron ore futures weakening in overnight trade, the early indications suggest the unwind will continue today.

According to Metal Bulletin, the spot price for benchmark 62% fines fell by a further 0.64% to $74.71 a tonne, taking losses from the four-month high of $76.68 struck on Thursday last week to 2.6%.

Other grades fared better than the benchmark on Monday.

Ore with 65% Fe content held steady at $94 a tonne while 58% fines actually logged a small increase, rising 0.24% to $49.71 a tonne.

Mirroring the mixed performance from iron ore markets, Metal Bulletin said that steel markets also put in a mixed showing for the session.

“China’s spot rebar prices were mixed on Monday, with losses in the billet and futures markets as well as expectations of a pick-up resulting in differing levels of trading activity,” it said.

The continued slide in the benchmark price followed the release of disappointing Chinese industrial output and fixed asset investment data for July midway through the session.

While Chinese crude steel output surged to 74.02 million tonnes, the highest monthly total on record, news that property investment continued to cool likely weighed on steel and iron ore futures later in the session.

“The resilience of steel production is unlikely to last, given headwinds from slowing investment growth,” said Julian Evans-Pritchard, China economist at Capital Economics.

“The property market looks to have cooled markedly in July. Growth in new housing starts and sales both dropped, with the latter now at its weakest level since 2015.”

That likely contributed to a weak close for Chinese iron ore and rebar futures during Monday’s day session.

The January 2018 iron ore contract in Dalian closed down 4.44% at 527 yuan, mirroring a similarly-sized decline in rebar futures in Shanghai which finished the session at 3,807 yuan.

Both contracts have fallen heavily after hitting fresh multi-month and multi-year highs respectively during the latter parts of last week, coinciding with a warning from the China Iron and Steel Association (CISA) that recent gains in steel prices were “not driven by market demand or reduced market supply”.

That weakness continued in overnight trade with rebar and iron ore futures building upon the losses seen during Monday’s day session.

Here’s the final scoreboard.

SHFE Rebar ¥3,752 , -2.16%
DCE Iron Ore ¥520.50 , -2.71%
DCE Coking Coal ¥1,293.00 , -1.41%
DCE Coke ¥2,087.50 , -2.54%

The declines suggest that further weakness in iron ore spot markets may continue should futures maintain or build upon those losses today.

Trade in Chinese commodity futures will resume at 11am AEST. Metal Bulletin will release its daily Iron Ore Index after 8.30pm AEST.

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