Iron ore is under pressure as Chinese steel futures slide

Marty Melville / AFP / Getty Images
  • Iron ore prices fell heavily on Tuesday, logging the largest declines in two months.
  • Chinese steel futures closed at five-week lows, trimming profit margins at mills and curbing demand for more expensive higher grade iron ore.
  • Chinese industrial output and fixed asset investment figures for April will be released on Wednesday.

Iron ore markets fell across the board on Tuesday, pressured by weakness in Chinese steel prices.

According to Metal Bulletin, the spot price for benchmark 62% fines slumped 1.8% to $94.34 a tonne, adding to the 1.2% fall seen a session earlier.

It was the largest daily percentage decline since March 20.

Weakness was also seen across other major grades on Tuesday.

65% fines dropped 1.8% to $10.40 a tonne. 58% fines fared a little better, slipping 0.7% to $82.50 a tonne.

The price discount for 58% fines compared to the benchmark narrowed to the lowest level since March 17, 2016.

The steep fall in physical markets were mirrored in iron ore futures, which gave up earlier gains to finish the session sharply lower.

According to data from the Dalian Commodities Exchange, the most actively traded September 2019 contract skidded to 644.5 yuan, down from 655 yuan on Monday evening. It briefly traded as high as 665.5 yuan in early trade.

Contributing to the weakness in iron ore markets, Chinese steel futures traded separately in Shanghai continued to slide, closing at fresh multi-week lows.

Rebar and hot-rolled coil contracts for October 2019 delivery finished at 3,663 and 3,595 yuan respectively, below Monday’s night session close of 3,674 and 3,604 yuan. Both settled at five-week lows.

“[China’s] Zenith Steel Group warned that the trade conflict is hurting steel demand,” said analysts at ANZ Bank. “It said orders from overseas markets have declined since the second half of last year amid the uncertainty.”

Rounding off the weak session for the bulk commodity contracts, coking coal and coke futures in Dalian also slumped, closing at 1,337 and 2,091 yuan respectively. That was well below the 1,356.5 and 2,116.5 yuan level they finished on Monday evening.

There was little change on those levels in overnight trade on Tuesday — steel futures were basically unchanged while iron ore, coking coal and coke contracts inched higher.

SHFE Hot Rolled Coil ¥3,595 , -0.17%
SHFE Rebar ¥3,666 , -0.16%
DCE Iron Ore ¥645.50 , -1.00%
DCE Coking Coal ¥1,342.00 , -0.52%
DCE Coke ¥2,096.50 , -0.59%

Trade in Chinese commodity futures will resume at 11am AEST, one hour before the release of Chinese industrial output and urban fixed asset investment data for April.

According to forecasts offered to Thomson Reuters, industrial output is expected to increase 6.5% from a year earlier, down from the multi-year high of 8.5% reported in March.

Between January and April, fixed asset investment in urban areas is tipped to grow 6.4% from the same period a year earlier, up marginally from the 6.3% increase seen in the first three months of the year.

Both reports will provide information on supply and demand for steel and its related raw materials.

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