Iron ore futures in China fell to a two-week low on Monday, under pressure from expectations of further output cuts by steel producers reeling from weak demand and tighter environmental controls.
The steelmaking commodity fell 40 percent last year, marking its third annual decline, as a global glut overwhelmed a market hit by an economic slowdown in top consumer China. There is unlikely to be a lot of restocking activity among Chinese mills ahead of the week-long Lunar New Year break in February, traders said.
“We don’t see iron ore demand picking up before the holidays. It may only improve by end of February or beginning of March,” said a Shanghai-based trader. The most-traded May iron ore contract on the Dalian Commodity Exchange was down 2.1 percent at 307 yuan ($47) a tonne by 0318 GMT. It touched 305.50 yuan earlier, its weakest since Dec. 28.
China’s northern Hebei province, which makes a quarter of the country’s steel, has pledged to cut steel output by 8 million tonnes this year in a bid to address overcapacity and air pollution, the official Xinhua News Agency reported on Friday. “People expect some small and medium-sized mills which are not environmentally qualified would be forced to stop production for a long period of time,” said the Shanghai trader. To tackle overcapacity, Chinese Premier Li Keqiang said the government “will let businesses compete against each other and let those unable to compete die out.”
That could further curb demand for iron ore, with stocks of imported material at China’s ports near their highest level since last May at 93 million tonnes, based on data tracked by industry consultancy SteelHome. “Rising iron ore exports from key suppliers and declining demand is expected to weigh on prices in the coming months,” ANZ Bank said in a note. Iron ore for immediate delivery to China’s Tianjin port fell 0.5 percent to $41.50 a tonne on Friday, according to The Steel Index, ending the week down over 3 percent after a three-week rally.
The commodity could fall below $30 in the next few months, according to a Reuters poll of analysts in December, due to expectations of sustained strong supply from top producers Australia and Brazil.