Iron ore just suffered its largest fall this year -- and there may be more to come

Photo by Frazer Harrison/Getty Images

Iron ore spot markets weakened on Friday, giving back some of the gains achieved earlier in the week.

According to Metal Bulletin, the price for benchmark 62% fines fell 1.3% to $78.05 a tonne, completely unwinding Thursday’s 1% increase.

It was the largest decline since December 27.

Even with that reversal, the benchmark still rallied 1.6% for the week, extending its gain so far in 2018 to 7.5%.

As is usually the case, the weakness in the benchmark was replicated across the grades.

Ore with 65% Fe content slid 1.2% to $93.50 a tonne. The price for 58% fines fared even worse, dropping 2% to $42.45 a tonne.

The losses coincided with earlier weakness in Chinese commodity futures — something that extended into Friday’s day session.

The May 2018 rebar contract in Shanghai fell 1.6% to 3,790 yuan a tonne, its largest one-day percentage fall in a month.

That acted to weaken iron ore, coking coal and coke futures traded separately in Dalian which closed down 2.1%, 1.4% and 0.7% respectively at 544 yuan, 1,345.5 yuan and 2,011 yuan a tonne.

Analysts put the weakness down to weak demand for steel product.

“Steel traders are cautious at the moment and reluctant to start buying. They would consider restocking if physical prices fall further,” Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen, told Reuters.

“The government-imposed production curbs at steel mills seem less stricter than the beginning of the smog campaign in mid-November. Weak steel prices will continue pressuring iron ore.”

In December, Chinese iron ore imports fell 11% to $84.3 million tonnes, according to data from China’s General Administration of Customs. Over the year, that took total imports 1.075 billion tonnes, the highest level on record and up 5% on the levels reported in 2016.

Even with the slowdown in Chinese iron ore demand last month, inventories held at major Chinese ports still soared to 150.083 million tonnes in the first week of 2018, according to data from Steelhome Consultancy, leaving it at the highest level on record.

Along with the reopening of Australia’s largest iron ore loading terminal — Port Hedland — following disruptions caused by ex-Tropical Cyclone Joyce late last week, that may have contributed to further declines in Chinese iron ore futures on Friday evening.

Here’s the final scoreboard.

SHFE Rebar ¥3,787 , -0.53%
DCE Iron Ore ¥540.50 , -1.28%
DCE Coking Coal ¥1,329.00 , -1.81%
DCE Coke ¥2,011.00 , -0.17%

All contracts finished flat to down on Friday’s day session close, including iron ore futures which last traded at 540.5 yuan a tonne.

That points to the likelihood of weakness in spot markets on Monday, at least in the early parts of trade.

All four contracts will reopen at midday AEDT.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.