Iron ore price drops as Chinese demand outlook darkens
September’s top-traded iron ore contract on China’s Dalian Commodity Exchange ended day trade down 5.8% at 719.50 yuan ($107.49) a tonne, extending losses to a third session and touching its lowest since June 23.
Mining stocks also fell, with Vale down 3.5% from the previous week, Rio Tinto down 3.69% and Fortescue down 6.16%.
Chinese factories idled dozens of blast furnaces as inventories piled up after domestic demand weakened, hit by covid-19 restrictions and bad weather.
The growing prospect of a global recession has also weighed on sentiment and China’s deliberate decision to cut steel production as part of its decarbonization plan.
“We expect iron ore futures to trade lower this week given these overwhelming negative price factors,” said Atilla Widnell, managing director of Navigate Commodities in Singapore.
Cities in eastern China tightened covid-19 restrictions on Sunday as clusters of the coronavirus emerge, posing a new threat to China’s economic recovery under the government’s strict zero covid policy.
The resurgence of iron ore shipments from Australia and Brazil, leading to a rise in China’s port stocks last week after falling for eight consecutive weeks, and Chinese property developer Shimao Group missing repayment of a obligation, also fueled the sale.
“Given China’s blast furnaces will likely continue to exercise better production discipline, we expect iron ore inventories at ports to increase inventory build this week,” Widnell said.
Nearly 90% of Chinese steelmakers suffered losses due to weak sales and low prices, according to Chinese industry data provider Mysteel.
(With files from Reuters)