Iron ore markets tumbled on Tuesday, undermined by soft demand and another large increase in Chinese iron ore port inventories.
According to Metal Bulletin, the spot price for benchmark 62% fines fell 3% to $74.29 a tonne, logging its largest one day percentage decline since December 27.
It now sits at a four-week low.
Like the benchmark, large losses were seen across the board, especially in lower grades.
The price for 58% fines was smoked, tumbling 5.1% to close at $40.73 a tonne. Ore with 65% Fe content fared better, losing 1.8% to settle at $89.80 a tonne.
It was ugly, mirroring the price action seen in futures earlier in the session.
Iron ore futures in Dalian closed down 4% at 521.5 yuan a tonne, recovering from even larger declines earlier in the session. Rebar, coke and coking coal contracts also softened, losing 0.7%, 0.9% and 0.4% respectively to close at 3,912 yuan, 1,993 yuan and 1284.5 yuan a tonne.
The sharp and sudden decline in spot and futures markets down to reduction in Chinese steel output.
“Iron ore demand is really weak as steel mills are curbing output,” an official from a steel mill in northern China told Reuters.
Analysts at ANZ Bank suggested that may have impacted iron ore demand from steel mills.
“Futures prices in China failed to gain any traction as traders failed to follow through with purchases following the strong close last week,” the bank said.
“This suggests that the restocking activity we saw emerge last week looks relatively weak.”
Another increase in Chinese iron ore port inventories, seeing them hit a fresh record high, was also cited as a reason to explain the selloff.
“Iron ore supplies continue to rise with port stocks testing record highs. With oversupply continuing, there is no foundation for iron ore prices to sustain gains,” China’s Iron and Steel Association (CISA) said on its website.
Inventories of iron ore held at major Chinese ports rose to 154.3 million tonnes last week, according to data from Shanghai Steelhome, leaving stocks up close to 30% on a year earlier.
“This represents approximately 50 days of imports,” said ANZ.
However, after plunging on Tuesday, the losses in Chinese iron ore futures stabilised in overnight trade, providing an early indication that the carnage may not extend into a second day.
SHFE Rebar ¥3,908 , 0.08%
DCE Iron Ore ¥521.50 , -1.23%
DCE Coking Coal ¥1,280.50 , 0.63%
DCE Coke ¥1,982.00 , -0.43%
Iron ore futures in Dalian closed unchanged from Tuesday’s day session close, largely mirroring similar price action in rebar and coal contracts.
Trade in Chinese commodity futures will resume at midday AEDT. Given the price action yesterday, it’ll likely garner more market interest than usual.