Iron ore collapses as steel markets panic

Seaborne iron ore prices were rocked on Monday by a panic in China that sent steel and raw material prices over a precipice. The decision by a growing number of mills to cut production in response to weak demand is being seen as an admission that steel demand will not be back for some time.

The Kallanish KORE 62% Fe index slumped $7.92/t to $116.23/dry metric tonne cfr Qingdao, the lowest since December. The Kallanish KORE 65% Fe index dropped $8.73/t to $135.83/dmt cfr, and the KORE 58% Fe index fell $5.70/t to $118.26/dmt cfr. 80,000 tonnes of Mac fines sold at $105.1/t with a laycan in 21-30 July.

On the Dalian Commodity Exchange, September iron ore settled down CNY 92/t at CNY 773/t ($115.35/t), while on the Singapore Exchange July 62% Fe futures settled down $9.07/t at $110.94/t. The same contract for 65% Fe and 58% Fe futures settled down $9.86/t at $127.86/t, and down $3.23/t at $124.07/t respectively. The only support came late in the day from speculators closing out short positions.

Chinese scrap and billet prices have also jumped off a cliff. 6mm+ heavy scrap delivered to mills in the Yangtze River Delta lost CNY 350/t to CNY 3,305/t, the lowest since November. Shagang led the way with cuts in recent days of around CNY 150/t but mills nationwide were slashing their buying prices over the weekend. Billet too has slumped, losing CNY 100/t over the weekend and another CNY 250/t on Monday to CNY 3,830/t, the lowest since January 2021.

China has already officially seen output fall sharply and implied end-user demand has slumped year-on-year. Official output figures may be overoptimistic however as provinces are under pressure to report that they have stabilised their local economies. Production cutbacks imply that markets remain heavily oversupplied.

Steel demand meanwhile remains week, with heavy rains and flooding in southern China, and extreme heat in northern China limiting construction activity. Confidence has hampered investment, and new Covid-19 restrictions in southern China mean neither investors nor consumers are making full use of available stimulus funds. China is still attempting to reboot the economy, but it is increasingly looking too late to effectively secure meaningful GDP growth this year.

Tomas Gutierrez UK