Iron ore prices are still sliding

Allen J. Schaben/Los Angeles Times via Getty Images
  • Iron ore spot markets fell again on Tuesday, led once again by mid and lower grades.
  • The weakness was replicated in Chinese futures but not in other bulk commodity and steel contracts.
  • Global crude steel production stood at 146.7 million tonnes in January, an increase of just 1% on 12 months earlier. That’s the weakest year-ended expansion in over a year.
  • Dalian iron ore futures rose modestly in overnight trade. The exchange announced late Tuesday that individual foreign investors will now be able to participate in iron ore contracts.

Iron ore prices continue to slide, led once again by mid and lower grades.

According to Metal Bulletin, the spot price for benchmark 62% fines skidded by a further 1.3% to $83.75 a tonne on Tuesday, adding to the 2.1% fall seen on Monday.

The benchmark has now fallen for five consecutive sessions — the equal-longest losing streak since March last year — leaving it down 7.5% from the multi-year high of $90.58 struck on February 11.

Losses were also seen across the other major grades on Tuesday.

58% fines shed 1.2%, settling at $68.12 a tonne. 65% fines fell by a smaller 0.4% to $96.50 a tonne. The latter has now fallen for six consecutive sessions.

“Iron ore prices continued decline on subdued buying activity from Chinese steel mills,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“Mills are justifiably cautious of purchasing iron ore on the seaborne market given elevated iron ore port stockpiles and steel rebar inventories.”

Dhar said environmental restrictions in the Chinese city of Tangshan, renowned for its heavy industry, may be another factor behind recent price falls.

“Adding to diminished iron ore demand are restrictions on sintering — the processing of iron ore fines — in Tangshan from 25 February to 3 March,” he said.

“Tangshan accounts for around 11% of China’s steel production capacity. The current sintering restrictions — which are stricter than previous arrangements — are in place to improve air quality that is forecast to remain poor.

“With iron ore demand subdued, we think the likelihood of a $US100 a tonne price spike is looking remote.”

The weakness in physical markets were replicated in Chinese futures on Tuesday.

According to the Dalian Commodities Exchange, the most actively traded May 2019 iron ore contract slid to 593.5 yuan, down from 597.5 yuan on Monday evening. It briefly fell to as low as 586 yuan earlier in the session.

The weakness in iron ore contracts came despite modest strength in Chinese steel futures on Tuesday.

Rebar and hot-rolled coil futures in Shanghai finished the session at 3,736 yuan and 3,744 yuan respectively, up from Monday’s night session close of 3,714 and 3,720 yuan.

According to the World Steel Association (worldsteel), global crude steel production stood at 146.7 million tonnes in January, an increase of just 1% on 12 months earlier. It was the weakest year-ended expansion in several years.

Chinese production fell to 75 million tonnes, down from 76.1 million tonnes in December. From a year earlier, that represented an increase of 4.3%, the slowest year-ended growth rate since August 2018.

The strength in steel markets may have prompted buying in coking coal and coke contracts which rose to 1,295 yuan and 2,143.5 yuan respectively, up 11 and 21 yuan from Monday evening.

However, the form during Tuesday’s day session was reversed in overnight trade. Iron ore futures rose while all other contracts eased.

SHFE Hot Rolled Coil ¥3,737 , 0.54%
SHFE Rebar ¥3,728 , 0.54%
DCE Iron Ore ¥599.50 , 1.01%
DCE Coking Coal ¥1,290.00 , 0.12%
DCE Coke ¥2,132.50 , 0.26%

The modest recovery in iron ore contracts coincided with news that the Dalian Commodity Exchange will now allow individual foreign investors to trade iron ore contracts from Wednesday.

According to Reuters, monthly trading volume in iron ore futures has halved since the middle of last year, falling to 30.12 million contracts in January from 60.08 million contracts in May 2018.

If you fancy a punt, you now have the chance to participate.

Trade in Chinese commodity futures will resume at midday AEST.

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