Iron ore slumps as China production cuts spark fears of demand drop

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Dalian and Singapore iron ore futures slipped on Monday as traders became cautious of faltering demand after China’s top steelmaking hub Tangshan ordered local steel mills to reduce production as part of efforts to improve air quality.

The municipal government of north China’s Tangshan asked the 11 A-class steel mills to take initiative to cut production, while mills rated as B-class or below need to suspend 50% of their sintering equipment over July 1-31, analysts at consultancy Mysteel said in a note.

There were no statements on the websites and wechat accounts of Tangshan’s relevant governments. The municipal bureau of ecology and environment did not immediately respond to a request for comments.

A-class mills reduced production by 30% while the rest cut their sintering production by 50%, Mysteel said, adding that many local mills have abundant sintered ore inventory to sustain production for around 20 days.

The most-traded September iron ore on the Dalian Commodity Exchange (DCE) ended daytime trading 1.68% lower at 819 yuan ($112.94) a metric ton, the weakest since June 27.

The benchmark August iron ore on the Singapore Exchange was 1.12% lower at $107.85 a metric ton, as of 0736 GMT, the lowest since June 26.

Market speculation about government intervention in the iron ore market last Friday weighed on sentiment as well. No official statements were seen.

The weakness came despite an accident at an iron ore mine in northern China has raised concerns that Beijing could order wider safety checks on mines, disrupting domestic iron ore supply.

Other steelmaking ingredients similarly weakened, with coking coal DJMcv1 and coke DCJcv1 on the DCE down 1.08% and 0.8%, respectively.

Steel benchmarks on the Shanghai Futures Exchange regained ground lost earlier the trading session on market talk of a crude steel output reduction policy in 2023, possibly to be announced in the coming weeks.

Rebar SRBcv1 climbed 0.56%, hot-rolled coil SHHCcv1 gained 0.42%, wire rod SWRcv1 added 0.33% and stainless steel SHSScv1 was little changed.

The state planner-National Development and Reform Commission-did not immediately respond to a fax request for comment.

Source: Reuters

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