Iron ore collapses as sentiment overwhelmed

Seaborne iron ore prices collapsed on Thursday, falling sharply below expectations. Weak steel demand, production restrictions and a lack of support from overseas markets have all weighed on prices. 

The Kallanish KORE 62% Fe index slumped a record $25.55/tonne to $132.37/dry metric tonne cfr Qingdao, the lowest level since November 2020. The Kallanish KORE 65% Fe index fell $19.35/t to $158.22/dmt cfr, and the KORE 58% Fe index dropped $18.40/t to $115.20/dmt cfr. About 170,000t of Carajas Fines traded on COREX at a floating price.

On the Dalian Commodity Exchange, January 2022 iron ore settled down CNY 46/t at CNY 775.5/t ($119.44/t), while on the Singapore Exchange September 62% Fe futures settled down $18.56/t at $130.60/t. The same contract for 65% Fe and 58% Fe futures settled down $25.09/t at $149.65/t, and down $2.50/t at $122.09/t respectively.

Scrap prices are belatedly responding to the decline in steel and iron ore prices as most mills begin to lower there purchasing prices for scrap delivered to their plants. 6mm+ heavy scrap delivered to mills in the Yangtze River Delta dropped CNY 32/t to CNY 3,726/t. Tangshan billet prices dropped more substantially by 100/t to CNY 4,880/t.

Iron ore sentiment had already been impacted by spreading restrictions on crude steel production, which had first set prices falling. The weaker economic outlook for China in the second half of 2021 was then signalled by the politburo and confirmed with July economic data released last week. Now, combined with the adjustment of expectations within China, the US Federal Reserve has also adjusted its expectations for credit conditions outside China. Iron ore prices could no longer resist the enormous downward pressure.

Now that prices have fallen so dramatically however, traders are not certain where prices will settle. Some expect further declines as the demand situation in China deteriorates. Others however say that prices have dropped too quickly and are due a correction upwards. Chinese steel demand is expected to bottom out shortly, and economic pressure could mean steel output also stabilises, they note.

Tomas Gutierrez UK