SINGAPORE, May 29: Spot iron ore fell to its lowest level for the year, at below $120 a tonne, as slower steel demand in top consumer China fanned fears producers may further curb output, with Shanghai rebar futures hitting near nine-month lows on Wednesday.
Some Chinese mills have been selling back iron ore cargoes to the market and traders are unloading shipments at a loss amid expectations that the price of the steel-making raw material may fall further as the Chinese economy sees slower growth.
The International Monetary Fund cut to 7.75 percent its growth forecast for China this year, from 8 percent previously, citing a weak global economy that has hurt its exports.
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> fell 2.6 percent to $117.80 a tonne on Tuesday, the lowest since Dec. 4, 2012, according to data provider Steel Index.
That was the steepest single-day decline for iron ore since May 2, when it slid by 3.5 percent. The price has fallen more than 12 percent in May, on track for its worst monthly performance since last August.
‘The market is tanking and some mills are selling their contracted cargoes with no premium at all,’ said a Hong Kong-based iron ore trader.
That suggests the mills are looking at cutting steel production further, as China heads into its seasonally weak consumption season from June, he said.
China’s daily crude steel output slipped to 2.185 million tonnes in mid-May, from a record pace of 2.193 million in the first 10 days of the month, industry data showed.
Some traders are also trying to unload cargoes bought when prices were at around $130, the Hong Kong-based trader said. ‘These traders are deciding to take the loss now because they don’t believe iron ore prices will go up in the near term,’ he said.
Even with Chinese mills eventually replenishing stockpiles, a seasonal increase in the country’s own iron ore supply combined with an increase in global seaborne material ‘suggests that iron ore prices may be weaker in the second half of 2013,’ Commonwealth Bank of Australia said in a note.
MORE PRESSURE FOR STEEL
The market’s bearish tone heightened this week after steel prices in China fell further as supply outpaced demand.
The most active October rebar contract on the Shanghai Futures Exchange hit a session low of 3,465 yuan ($570) a tonne on Wednesday, its cheapest since Sept. 7.
The price of rebar, a steel product used in construction, has dropped by over a fifth from February’s nine-month peak of 4,382 yuan, and Chinese mills see a further decline.
Shanghai rebar hit an all-time low of 3,376 yuan on Sept. 6, around the same time that iron ore hit a three-year low of $86.70.
‘I don’t expect trends to change in the next few months because capacity is too high and industry consolidation rates are too low, while at the same time iron ore oversupply is becoming more pronounced, meaning that prices will continue to decline,’ Wang Xiaoqi, deputy chairman of the China Iron and Steel Association said at an industry conference in Shanghai.
‘So I predict that steel prices are going to fall more deeply this year.’
Iron ore swaps were also under pressure, with prices extending recent losses, reflecting market expectations that spot rates could slip further.
The June contract traded at $114.25 a tonne in Asia afer settling at $115.33 on Tuesday, the lowest since early December, traders said the July contract eased to $111 from $111.92, they said.
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