Iron ore is below $60 for the first time in months

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Iron ore spot markets remain under pressure, continuing to slide on the back of ongoing concerns about the outlook for Chinese demand.

According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 2.2% to $58.75 a tonne, leaving it at the lowest level since June 23.

It’s now fallen in each of the past four sessions, extending its losses from August 21 to 26.5%.

Both higher and lower grades were also hit hard, especially the latter which fell to fresh multi-year lows.

The price for 58% fines slid 1.6% to $34.83 a tonne, the lowest level seen since mid-January 2016. Reflecting just how much lower grades have underperformed the benchmark in recent months, the current price is now only just above the record low of $33.49 a tonne struck in mid-December 2015.

In comparison, the losses in higher grades were significantly smaller on Monday with ore with 65% Fe content falling 0.9% to $80.10 a tonne.

“Iron ore prices fell on weaker restocking demand as steel mills appear well supplied ahead of impending production cuts,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank.

“The curtailments to steel output are expected to sideline 30-35 million tonnes of crude steel production. That translates through to 42-49 million tonnes, or around 3% of the seaborne iron ore market.”

China is limiting steel production levels in winter months in an attempt to improve air quality in Northern Chinese provinces.

The cuts were originally scheduled to run from mid-November to mid-March, but poor air quality in the key steel producing area of Tangshan saw those cuts brought forward, crimping steel mill demand for raw materials such as iron ore and coking coal.

Dhar said the losses on Monday were notable because it came despite policymakers easing restrictions on sintering and steel output in some regions given an improvement in air quality in Northern China in recent days.

The easing of sintering restrictions may explain why the premium for iron ore lump over the benchmark price fell to just $20 on Monday, the narrowest that it’s been June 27.

Iron ore lump usually trades at a premium to fines because it can be directly applied to blast furnaces. Iron ore fines, on the other hand, has to undergo sintering before being used in furnaces. At a time of environmental-led production cuts, it’s seen lump premiums rise substantially in recent months.

Further exacerbating demand concerns, iron ore stockpiles at Chinese ports rose strongly last week, jumping by 2.7% to 135.8 million tonnes, according to data from Steelhome.

The weekly increase was the largest since February.

Providing few clues that the selling pressures across spot markets will ease today, Chinese iron ore and rebar futures continued to push lower in overnight trade.

The January 2018 iron ore contract in Dalian finished at 424.5 yuan, down marginally from Monday’s day session close of 425 yuan. Rebar futures in Shanghai fell even further, sliding to 3,546 yuan from Monday’s day session close of 3,571 yuan.

SHFE Rebar ¥3,546 , -1.25%
DCE Iron Ore ¥424.50 , -0.82%
DCE Coking Coal ¥1,095.50 , -1.13%
DCE Coke ¥1,673.50 , -2.76%

Given the early indications, it suggests that sentiment among traders continued to deteriorate in overnight trade.

However, that may all change today with the release of Chinese manufacturing, non-manufacturing and steel industry PMIs for October at midday AEDT. These reports have often led to sharp moves in Chinese iron ore, coking coal and rebar futures in recent months, especially to the upside.

Whether that can continue given clear signs of a slowdown in steel production in recent weeks remains debatable.

Trade in Chinese commodity futures will resume at midday AEDT.

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