Iron ore sank below $100 a ton for the first time since March on signs of ample supplies just as demand in China faces headwinds.
Futures plunged 2.3% to trade at $98.90 a ton by 3:36 p.m. in Singapore, dropping for a second day. Data this week showed that steel production in China — the world’s largest iron ore importer — shrank again in May. In addition, fixed-asset investment and consumer spending slumped back to levels unseen since the pandemic, exposing risks for Asia’s largest economy.
“Iron ore’s issues of high supply and high inventory at current prices are becoming increasingly apparent,” said Hu Yanbing, a researcher at Citic Futures. “Secondly, the latest Chinese economic data shows that both consumption and investment have fallen short of expectations, and ferrous metals are highly sensitive to domestic macroeconomics.”
The steel-making staple has dropped by about 6% this year following a run of five weekly declines, the longest losing streak since February. In addition to demand conditions in China, traders are also tracking the gradual ramp-up of output at the new Simandou mine in Guinea, which is bolstering supplies.
Iron ore may also have been undermined by this week’s slump in crude oil prices driven by signs that the Strait of Hormuz may soon be reopened. That’s contributed to weaker freight rates, according to Hu.
“Expectations regarding the reopening of the strait led to a sharp drop in crude oil prices, which significantly lowered ocean freight rates and weakened cost support” for iron ore, Hu said.
China’s usage of iron ore is central to the commodity’s fortunes as the country is the world’s largest steelmaker by a vast margin. At present, while monthly steel production has been sinking, holdings of iron ore at the nation’s ports have ballooned to the highest level ever for this time of year.
While mining executives remain optimistic about demand prospects in other Asian nations — especially India, which is ramping up steel output at a rapid clip — the overall rise may not fully offset weaker Chinese consumption.
(By Jake Lloyd-Smith and Katharine Gemmell)
