Iron ore sags with Chinese steel, may find support on low stocks

16 September 2015

Iron ore futures in China and Singapore dropped further on Tuesday as Chinese steel prices weakened amid slow demand, although low stocks of the raw material may provide support.

Iron ore for January delivery on the Dalian Commodity Exchange, the most traded contract, was down nearly 2 per cent at 398 yuan ($63) a tonne by 0317 GMT, pulling away from Friday’s 10-week high of 417 yuan.

The October contract on the Singapore Exchange slipped 0.6 per cent to $53.87 a tonne.

“Steel demand is not great I agree, but mills keep producing and as long as you keep producing you keep pressure on steel prices,” said an iron ore trader in Shanghai. Steel consumption in China, the world’s top consumer, has continued to shrink after dropping in 2014 for the first time in more than three decades, and this year, the market remains oversupplied, forcing many producers to sell more overseas.

The most-active January rebar on the Shanghai Futures Exchange dropped 0.4 per cent to 1,927 yuan a tonne.

The sustained steel production should support iron ore prices, traders said, which have largely stabilised above $50 a tonne since recovering from a decade-low of $44.10 in July.

Iron ore for immediate delivery to China's Tianjin port fell 1.7 per cent to $57.50 a tonne on Monday, reported The Steel Index (TSI), citing a large gap between bids and offers on physical trading platforms in China and Singapore.

“Some traders were holding out for higher prices privately, but buyers shied away,” price assessment agency TSI said.

“I don’t think there's too much room for prices to go down. There should be some stock build-up by mills before the October holidays,” said the Shanghai trader, referring to the week-long National Day holiday in China.

Stocks of iron ore in the country are also not high, indicating steady demand among mills.

Iron ore inventory at 44 Chinese ports stood at 80.05 million tonnes as of September 11, the lowest since late June, data from consultancy SteelHome showed.

China’s iron ore output dropped 9.5 per cent in August from a year ago to 123.81 million tonnes, government data showed.