It's been a rough start to the week for iron ore markets

  • Iron ore spot and futures markets tumbled on Monday, adding to the steep declines seen on Friday.
  • The declines followed news that China’s government will deliver less fiscal stimulus to the economy this year.
  • Rebar and iron ore futures continued to slide in overnight trade.

Iron ore spot markets had a rough start to the week, falling heavily for a second consecutive session.

The price for benchmark 62% fines skidded 1.7% to $77.03 a tonne, according to pricing from Metal Bulletin, adding to the 1.3% decline seen on Friday.

It now sits at the lowest level since February 12.

Heavy losses were also seen across lower and higher grades.

The price for 58% fines slumped 2% to $43.28 a tonne. Ore with 65% Fe content fell by a similar margin, sliding 1.8% to $92.70 a tonne.

It was an ugly session, mirroring the price action seen in Dalian iron ore futures which nosedived into Monday’s day session close.

The May 2018 contract tumbled 3.6%, finishing the session at 520 yuan a tonne.

The decline followed the release of data from Steelhome Consultancy that showed Chinese iron ore port inventories jumped by 2% to 155.8 million tonnes, the highest level on record.

Coke and coking coal futures also weakened, losing 2.5% and 0.6% respectively to close at 2,177 yuan and 1,374.5 yuan a tonne.

Rebar futures traded separately in Shanghai finished trade down 1.3% at 3,957 yuan a tonne, recovering after falling as low as 3,948 yuan a tonne at one point during the session, the lowest level since late February.

Rather than fears of looming a trade war, analysts put the declines down to domestic factors in China.

“Previous gains [in steel prices] were mainly driven by the expectation that output curbs in Tangshan could spread to other northern regions, lifting market sentiment and prices, but demand hasn’t recovered yet, so prices lost support,” Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen, told Reuters.

“If demand fails to pick up quickly in late March, we might see prices entering a downward trend.”

Chinese rebar inventories swelled to 7.13 million tonnes in late February, according to data from Steelhome Consultancy, leaving them at the highest level since March 2017.

The declines in spot and futures markets followed the release of the Chinese government’s fiscal and economic goals for 2018, including the decision to lower its budget deficit target to 2.6% of GDP, the first decrease since 2012.

There was little reaction to an announcement from China’s National Development and Reform Commission (NDRC) that it will cut about 30 million tonnes of steel capacity again this year, adding to the shutdowns seen over the past two years.

The government previously pledged to remove up to 150 million tonnes of outdated or illegal steel production capacity by 2018 to 2020.

It also announced additional shuttering of 150 million tonnes of coal production capacity in 2018, bringing total closures since early 2016 to 590 million tonnes.

Despite those announcements which have tended to support prices in the past, it was not enough to support spot and futures prices on this occasion.

As seen in the scoreboard below, both rebar and iron ore futures continued to weaken in overnight trade.

SHFE Rebar ¥3,935 , -1.13%
DCE Iron Ore ¥518.00 , -2.17%
DCE Coking Coal ¥1,377.00 , -0.40%
DCE Coke ¥2,183.00 , -1.22%

Coking coal and coke managed to buck the downdraft, taking back some of the losses seen during Monday’s day session.

Trade in Chinese commodity futures will resume at midday AEDT.

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