Iron ore gave up all its gains this year as it dropped more than 7% in Singapore. Meanwhile steel mills have begun to idle blast furnaces, as many fear China’s economy will take too long to recover, and demand will be suppressed for months, if not years.
Iron ore has had eight straight days of decline, as it has gradually seen a fifth of its value peeled away. And that contagion has spread to other commodities, as Chinese prices for metallurgical coal dropped 12% at their bottom, a low not seen since late February.
Corvid lockdowns, and China’s slumping real estate market are the two main causes analysts cite for the drop in Chinese consumption of Iron ore. For a brief while last month there was hope that China would make a clean break from lockdowns, however investors have gradually realized that sudden lockdowns and mass testing are not going away, and China’s economy may be hobbled by them for some time to come.
Steel mills in Tangshen are seeing weaker margins and taking advantage of the downturn to idle furnaces and do regular maintenance, as blast furnace rates fell for the first time since mid-May. A Chinese steel profit index has also fallen almost 90% just this month.
Wei Ying, a ferrous analyst at China Industrial Futures said, “With the slow spot trade, steel product prices have plunged, with more steel mills now losing money and hastening planned maintenance.”
Construction related steel products used to see daily spot trading at around 17 to 19 million tons, but now it is just 11 to 13 million tons, Wei added.
Mysteel said in a separate note, “Downstream demand remains poor with few spot trades occurring, and the bleak outlook for China’s construction industry continues to test market confidence.”
Although Beijing has tried to intervene with a suite of supportive policy measures over the last couple of months, it has failed to produce persistent price gains, as the Covid threat and China’s zero-Covid-policy continues to infect investor sentiment.
Chinese Steel mills have been betting that infrastructure stimulus following the lockdowns would produce a swift rebound in property construction, so they have been ramping up output, hoping the demand would materialize in the coming months, according to a note by Gavekal-Dragonomics Research.
However if the real estate market does not quickly pick up, it is possible an oversupply condition will arise, causing a swift price drop, which will probably produce a cutback on production.
In Singapore, Iron ore dropped 7.4% to $111.20 per ton at 4:16 Singapore time. Futures in Dalian fell 8.3% as steel rebar and hot-rolled coil both dropped by roughly 5%. Chinese coking coal futures dropped 7.1% to 2,414.5 yuan per ton.
Iron ore fell 7.4% to $111.20 a ton as of 4:16 p.m. in Singapore. Futures in Dalian sank 8.3% and steel rebar and hot-rolled coil both declined by around 5%. Chinese coking coal futures fell 7.1% to 2,414.5 yuan a ton.
