Iron ore futures in China and Singapore resumed their decline on Tuesday after recent gains, underlining the market’s fragile sentiment as steel prices remained under pressure amid weak Chinese demand.
Shanghai steel futures came off five-week highs and iron ore in Dalian dropped from Monday’s three-week top. Singapore iron ore futures slid nearly 3 percent. “Unfortunately for the bulls, the overall supply remains high,” commodities broker Marex Spectron wrote in a note to clients.
“Demand is weak and may well get even weaker before we see an improvement.” Construction activity in China continues to be weak and will only change if lending conditions improve considerably, it said. The most-traded May iron ore on the Dalian Commodity Exchange was down 0.5 percent at 304.50 yuan ($47) a tonne by 0320 GMT. On the Singapore Exchange, January iron ore fell 2.7 percent to $38.90 a tonne. Both benchmarks have shed more than 16 percent in the past three months.
Construction-used rebar on the Shanghai Futures Exchange fell 0.9 percent to 1,722 yuan a tonne after peaking at 1,764 yuan earlier in the session, its loftiest since Nov. 16. A global glut and shrinking Chinese steel demand have pummeled iron ore prices, with the spot rate down 45 percent this year, outpacing declines in oil and copper. What will spur a recovery in iron ore would be “junior miners getting out of business”, said an iron ore trader in Shanghai.
“A lot of Chinese steel mills will also die out which will reduce overall production,” helping tighten the market, the trader added. Miners need to cut about 250 million tonnes of iron ore capacity, or 18 percent of current supply, over the next three years to balance the market, Goldman Sachs has said. Iron ore for immediate delivery to China’s Tianjin port gained 0.3 percent to $39.40 a tonne on Monday, according to the Steel Index (TSI). It marked the fourth straight session of increase for the spot benchmark which tumbled to $37 on Dec. 11, its lowest since at least 2008.