Iron ore slides as Chinese steel production cuts begin

Chris Hyde/Getty Images

Iron ore spot markets were hammered on Wednesday, mirroring an even larger selloff in futures markets.

According to Metal Bulletin, the price for benchmark 62% fines fell 2.1% to $61.84 a tonne, leaving it at the lowest level since November 3.

The weakness in the benchmark was evident across the grades, albeit to a smaller degree.

58% fines lost 0.5%, finishing the session at $36.24 a tonne. Ore with 65% Fe content fell by a larger 1.2% to $80.40 a tonne.

The weakness in spot markets followed a shellacking in futures on Tuesday evening, with no respite coming during Wednesday’s day session.

Iron ore futures in Dalian tumbled 4.2% to 446 yuan while rebar futures in Shanghai fell by a smaller 0.7% to 3,883 yuan.

The sharp fall in futures comes amidst further signs that restrictions on steel production in China — now fully in force — are crimping iron ore demand from mills.

“The north China ports, feeding China’s steel heartland, are filling up with iron ore,” says Matthew Hope, research analyst at Credit Suisse.

“Of the six biggest iron ore ports in China, all located in the north, only Qingdao has plenty of spare capacity. The others have seen stocks lift over the last month as buying interest diminishes under the impact of the 50% steel curtailments.”

Chinese authorities have enforced steel production cuts between mid-November and mid-March 2018 in an attempt to improve air quality in northern Chinese provinces during winter.

With port storage running out fast, Hope says this may have lead to iron ore miners having to reduce output in the coming months.

“Buyers own the ore when the loaded vessel exits suppliers’ ports so storage is their problem. But it will be an issue for miners if buying interest dries up due to a lack of storage space,” he says.

“The solution may be cutting mining rates — particularly in Australia — which lacks the highly desirable high-grade ore.”

After the carnage over the previous 24 hours, Chinese futures stabilised overnight, hinting that the losses in spot markets may slow or even reverse today.

Here’s the final scoreboard from Wednesday’s night session.

SHFE Rebar ¥3,870 , -0.46%
DCE Iron Ore ¥448.00 , -0.99%
DCE Coking Coal ¥1,173.50 , -1.80%
DCE Coke ¥1,829.00 , 1.41%

Iron ore futures finished fractionally higher compared to Wednesday’s day session close. Rebar futures went the opposite direction, losing a bit of ground.

Both moves are insignificant in the broader scheme of things, meaning the price performance during Thursday’s day session — beginning at midday AEDT — will probably give a better guide as to what direction spot markets may move today.

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