Iron Ore Dips As China’s Steel Capacity Cuts Gather Pace

26 August 2016

The iron ore price has edged lower after one Chinese steel manufacturer said it would pull out of the steel industry and switch its focus to finance.

Iron ore lost 0.7 per cent to $US61.10 overnight, according to The Steel Index, from $US61.50 yesterday.

Chongqing Iron and Steel pointed to industrial overcapacity, a weak economy, rising labour costs and low steel prices for its decision, according to a Reuters report.

“In order to fundamentally improve the listed firm’s performance and protect the interests of medium- and small-sized investors, the plan is to remove the company’s steel-related assets, the group said.

China is aiming to reduce steel capacity over the medium term as its producers remain unprofitable, according to Reuters.

If other steelmakers were to follow suit and reduce or shelve production, this could weigh on China’s demand for iron ore, a key steelmaking ingredient.Several analysts expect demand for the commodity will fail to keep up with production increases, tipping prices to fall into the low $US50s or $US40s over this year and next.

On the other hand, many traders are hoping that planned Chinese investment in infrastructure will continue to boost demand for the commodity into the future. These hopes have underpinned a surprising rally in the iron ore price over recent months.

In London trade, BHP Billiton shares fell 0.5 per cent, while Rio Tinto closed steady.


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