Iron ore prices slump

  • Iron ore spot markets fell across the board on Monday, weighed down by continue weakness in Chinese steel prices.
  • Concerns about Chinese demand over winter, as well as a major producer announcing price cuts for December, were cited as catalysts behind the weakness in steel markets.
  • Chinese steel futures bounced in overnight trade, perhaps helped by temporary steel production cuts announced in the Chinese province of Hebei.

Iron ore spot markets fell across the board on Monday, weighed down by continue weakness in Chinese steel prices.

According to Metal Bulletin, the price for benchmark 62% fines slumped 1.5% to $76.05 a tonne, the largest percentage decline since November 2.

The benchmark had risen to the highest level since March 2 on Friday.

Losses were also recorded across lower and higher grade ores on Monday.

The price of 58% fines slid 1.4% to $45.19 a tonne, outpacing a 0.9% drop in the price for 65% Brazilian fines which settled at $96.30 a tonne.

After rallying on Friday on the back of speculation over supply-side disruptions and Chinese steel production levels over winter, the reversal in spot markets was likely dues to continued weakness in Chinese steel futures.

The January 2019 rebar contract dipped to as low as 3,818 yuan earlier in the session, the lowest level in over three months. It eventually finished trade at 3,845 yuan, down from 3,878 on Friday evening.

Analysts said prices were pressured by worries over slowing demand in China over winter, traditionally a weak period for construction activity.

Sentiment may have also been impacted by news that major Chinese steelmaker Baoshan Iron and Steel will cut prices for key steel products by as much as 200 yuan per tonne for December.

“This shows that as the winter season has kickstarted, steel demand is slowing due to weak seasonality,” Argonaut Securities analyst Helen Lau told Reuters.

The weakness in steel prices had little impact on Chinese iron ore, coking coal and coke futures traded separately in Dalian which finished mixed for the session.

Iron ore finished trade at 520.5 yuan, almost unchanged from Friday evening, while coking coal actually rose a tad, lifting to 1,354 yuan from Friday’s night session close of 1,342.5 yuan.

Coke futures — after tumbling earlier in the session — eventually finished at 2,303.5 yuan, just below the prior session close of 2,306 yuan.

As seen in the scoreboard below, all contracts finished flat to higher in overnight trade on Monday, led by a strong rebound in rebar futures.

SHFE Hot Rolled Coil ¥3,616 0.06%
SHFE Rebar ¥3,876 , 0.18%
DCE Iron Ore ¥520.50 , 0.10%
DCE Coking Coal ¥1,361.50 , 0.74%
DCE Coke ¥2,319.50 , 0.45%

The bounce in steel futures may been caused by news that Hebei’s local government, the largest steel-producing province, had issued a “orange” smog alert, requiring steel mills to halve their output levels until November 16.

While that would understandably support steel prices, curiously, it had no impact on bulk commodity prices despite the threat posed to short-term demand outlook.

Trade in Chinese commodity futures will resume at midday AEDT.

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