This chart helps explain why iron ore prices are tumbling

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  • Iron ore spot markets tumbled on Monday, logging declines of 3% or more.
  • The benchmark iron ore price has lost 15% since March 1.
  • Chinese data on new home prices may have contributed to the selloff seen on Monday.

Iron ore spot markets were clobbered on Monday, continuing the trend seen in March.

According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 3.4% to $67.45 a tonne, its lowest level since December 7.

It’s now lost over 15% since March 1.

The losses were even larger across higher and lower grades, especially the latter where 58% fines tumbled by over 5%.

This chart may explain the ugly price action seen during the session.

Source: Commonwealth Bank

From the Commonwealth Bank, it shows monthly changes in new home prices in China, according to data released by China’s National Bureau of Statistics.

While price growth has been slowing for some time, reflective of more stringent restrictions on home purchases introduced in late 2016 by Chinese policymakers, Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank, said February’s report only intensified concerns about the outlook for Chinese steel demand, weighing on the prices of its raw ingredients, including iron ore.

“Iron ore prices slumped on Monday on demand concerns after fewer cities saw new home price increases from January to February,” he says.

“The number of Chinese cities that saw month-on-month price increases fell to 44 out of 70 in February from 52 in January.”

Dhar said that reduction, in unison with slower price growth nationally, only acted to increase market skittishness towards the outlook for residential construction activity in China.

“The weaker property sector exacerbates demand concerns that have lifted over March with the rise in China’s steel rebar stockpiles,” he says. “Steel rebar inventories, which are used primarily in the construction sector, are now at the highest level since 2013.”

Coupled with record levels of iron ore inventories held at Chinese ports, it goes someway to explaining the recent weakness seen across the steel complex.

Dhar says the next few weeks will prove crucial as to whether concerns about the demand outlook are justified.

“We should get a sighting of China’s construction activity in coming weeks as the weather improves and workers return from holiday,” he says.

“We don’t think a steep fall in construction activity is likely given the risks that poses to China’s commodity intensive economy, but that view is facing scrutiny.”