Shanghai steel futures languished near a record low on Tuesday amid cooling Chinese demand, putting more pressure on raw material iron ore that is only a tad off a seven-year trough. A global glut of iron ore at a time of shrinking steel demand in top market China has caused prices to fall 38 percent this year, on course for a third consecutive annual decline.
This has led to deep cost cuts for iron ore producers, both big and small, including mid-cap Australian miner BC Iron which incurred a net loss of A$158.5 million ($114.07 million) in the year to June. â€œGiven the price of iron ore, reality needed to be addressed and acted upon. There was no point in building a current and future strategy on hope,â€ BC Iron Chairman Anthony Kiernan said at the companyâ€™s shareholdersâ€™ meeting on Tuesday.
Iron ore for immediate delivery to Chinaâ€™s Tianjin port .IO62-CNI=SI fell 1.8 percent to $44.20 a tonne on Monday, according to The Steel Index (TSI). That was only 10 cents above this yearâ€™s low reached in July which was the lowest ever for the spot benchmark since TSI began compiling data in late 2008. Based on annual pricing that preceded the current spot-based system, Julyâ€™s $44.10 was the lowest since 2005, according to data compiled by Goldman Sachs.
â€œSentiment in the spot iron ore market was negative, with talk of rising output at iron ore miners flooding the market as steel mills start to shut production,â€ TSI said in a note. Chinaâ€™s steel output dropped 2.2 percent in January-October, while demand fell nearly 6 percent during the period. The bleak market has also forced closures among many of Chinaâ€™s steel producers that have been hit by losses as the worldâ€™s No. 2 economy heads for its slowest growth in 25 years.
Rebar for May delivery on the Shanghai Futures Exchange hit a low of 1,652 yuan a tonne, near Mondayâ€™s bottom of 1,649 yuan which was the lowest for a most-traded rebar contract since its 2009 launch. It was down 0.6 percent at 1,660 yuan by 0250 GMT. On the Dalian Commodity Exchange, May iron ore fell 1.3 percent to 299 yuan a tonne.