Iron ore's recovery has run out of puff

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The rebound in spot iron ore markets ran out of puff on Thursday, weakening slightly following a reversal in Chinese futures earlier in the session.

According to Metal Bulletin, the spot price for benchmark 62% fines slipped 0.57% to $81.78 a dry tonne,giving back most of the gains achieved in the previous two sessions.

“The iron ore market shifted downwards today as differing grade boundaries continue to re-align themselves to more viable levels,” said Metal Bulletin.

The renewed weakness followed news that additional lending restrictions on home buyers had been introduced in several Chinese cities.

“In China, another round of restrictions has hit the booming housing sector,” said economists at ANZ. “More than 20 cities have announced specific cooling measures aimed at curbing demand.”

Residential construction is one of the chief sources of demand for iron ore in China.

Along with additional lending restrictions, prices may have been undermined by remarks from the powerful China Iron and Steel Association (CISA) that iron ore prices would retreat amid lower steel demand in China.

“We think China’s steel consumption will decrease step by step by step — maybe increase some years, like last year. That’s our situation,” Li Xinchuang, vice chairman of CISA, told an industry conference in Perthm according to Reuters.

Li sees seaborne iron ore supply increasing by about 50 million tonnes this year, which, along with a recent acceleration in Chinese production levels as a result of higher prices, could act as a headwind to prices this year.

“Unfortunately, with the fast increase of iron ore prices, China iron ore production increased 15% in the first two months,” he said.

Li believes iron ore prices will range between $55 and $90 a tonne this year, averaging around $65.

And he doesn’t share much optimism towards prices in the future, either.

“What’s the future? We think the oversupply of global iron ore is very serious for the long term,” he told the conference.

All eyes will turn to the resumption of trade in Chinese commodity futures at midday AEDT, particularly as this will correspond with the release of Chinese manufacturing and non-manufacturing PMI figures for March.

A separate Chinese steel industry PMI will also be released at this time, and may prove influential on the performance of futures during the session.

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