Wednesday, January 19

Iron ore falls as steel curbs cut deep into the world’s leading producer

Iron ore futures extended losses below $ 100 a ton due to contraction in Chinese steel production and signs that economic growth is facing increasing headwinds.

Prices in Singapore tumbled for a fifth day as the world’s leading steelmaker stepped up its efforts to limit annual steel volumes. While China has imposed production restrictions throughout 2021, the restrictions are now being implemented more frequently and the limits have been extended to the first quarter in an effort to ensure blue skies for the Winter Olympics.

Daily crude steel production in the last third of October fell to its lowest level since March 2020, according to researcher Mysteel, citing a study of 247 blast furnaces and 71 electric arc furnaces. There were frequent requests from local governments to halt production, while weak demand for steel and falling prices have reduced the willingness of mills to produce, he said.

China’s leading industrial group has previously said that steel volumes fell in early and mid-October, while official data showed that production fell to its lowest level since 2017 in September.

“The likelihood of iron ore demand falling by at least 20% in the fourth quarter is increasing, judging by lower downstream demand,” Orient Futures Co. analyst Xu Huimin said. “We have to monitor whether the mills will actually cut production on their own, which will make the market one step worse.” The iron ore market in October was already in a 15% surplus and cost support is currently at around $ 80 to $ 90 per tonne, he said.

Iron ore futures in Singapore fell 8.1% to $ 92.10 a tonne at 12:03 pm local time. Prices in Dalian fell the daily limit, while rebar and hot rolled coil plunged in Shanghai.

Wild swings

The market has been affected for the past month as restocking in early October sent futures higher from a 16-month low, and the rally faltered on growing concerns about longer-term consumption. . Prices in Singapore have dropped more than 50% this half due to China’s push to curb emissions and pollution in the steel sector, as well as a crackdown on the property market.

China’s housing sector, a major source of demand for steel and metals, is under pressure from rules aimed at curbing leverage, as well as a slowdown in the market. Credit counselors are downgrading companies in the industry at the fastest pace on record, while at least four developers defaulted last month and others tried to delay short-term bond payments as contagion spreads from China. Evergrande Group.

More generally, China’s economy is showing signs of weakness. The official manufacturing purchasing managers index remained below the 50 mark, indicating a contraction for a second month in October, while the steel industry PMI declined.

The fall in iron ore has also affected the main miners. Rio Tinto Group shares headed to their lowest close since May 2020, while BHP Group was on track to hit the lowest level in about a year in Sydney. In Brazil, Vale SA has lost more than 30% since the beginning of August.

© 2021 Bloomberg

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