Iron ore price falls as Chinese steel mills cut output

Iron ore futures prices continued their fall on Monday to the lowest level in more than four months. The price drop has largely been caused by a drop off in steelmaking in China, the top consumer of iron ore.

China’s Dalian Commodity Exchange (DCE), the most-traded May iron ore contract, ended the day’s trading 5.41% lower at 831 yuan ($115.68) per tonne (t), its lowest since 23 October. Meanwhile, the benchmark April iron ore on the Singapore Exchange slid 6.71% to $107.45/t, the lowest since 22 August.

Analysts told Reuters that improved shipments at the start of the year and poor demand recovery has led to an oversupply of iron ore and hence intense downward pressure on prices.

“The global ore shipments have climbed to a relatively high level. The recent ore price fall has not triggered a production reduction among non-mainstream suppliers. Some mills postponed again the timing of production resumption, curbing ore demand rise and destocking at ports,” analysts at Citic Futures said in a note seen by Reuters.

Chinese steelmakers are looking to cut production due to rising costs, weak demand caused by the property crisis and inventory pressures. In Yunnan province in south-western China, steel mills have cut production to mitigate losses. The region’s steel industry association plans to cut production by 500,000t.

Steel benchmarks on the Shanghai Futures Exchange were weaker. Rebar fell 2.41%, hot-rolled coil shed 1.95% and stainless steel dropped 1.34%.

China’s ongoing property crisis is also dampening demand for ferrous metals. New apartments have been left empty as demand for housing has slackened and home builders and local governments face large debts. Measures taken by the government to alleviate pressure appear to have failed, as it now says insolvent companies must go bankrupt and reorganise without government support.