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Iron Ore Tumbles on Weakening Chinese Steel Demand

Prices Reach Seven-Week Low as Market Grapples with Uncertainties

by Victor Adetimilehin

Iron ore prices have experienced a significant plunge, reaching a seven-week low as anxieties over softening steel demand in China, the world’s largest consumer, collide with expectations of increased supply. This decline raises concerns about the future trajectory of the iron ore market.

Demand Downturn and Supply Surge Put Pressure on Prices

Iron ore futures prices extended their downward trend for a fifth consecutive trading session on Wednesday, June 5th, 2024. The most actively traded September iron ore contract on China’s Dalian Commodity Exchange (DCE) witnessed a closing decline of 1.84%, settling at 825 yuan ($113.86) per metric ton. This represents the lowest price point since April 16th. The benchmark July iron ore contract on the Singapore Exchange mirrored this trend, dropping to $106.35 a ton, its weakest level since April 11th.

Analysts point to a confluence of factors driving the price slump. First and foremost, steel demand in China, the linchpin of global iron ore prices, has shown signs of weakening. This can be partially attributed to a slowdown in the construction sector, along with the temporary suspension of construction activities in some Chinese cities due to the upcoming National College Entrance Examination.

Secondly, the iron ore market is facing downward pressure due to expectations of a surge in shipments to China during June. While recent stimulus measures implemented by the Chinese government aimed to bolster demand, analysts generally view the overall fundamentals for iron ore as fragile. Supply is anticipated to remain high throughout June, with limited prospects for a significant demand increase in the near future.

Short-Term Price Support Possible, But Downward Trend Likely

Despite the current price decline, some analysts believe there may be limitations to the downside in the short term. Steel mills might seize the opportunity of lower prices to replenish their inventories ahead of the upcoming Dragon Boat Festival holiday in China. Additionally, the closure of the Chinese futures market on June 10th for the holiday could provide some temporary support to prices.

The downturn in iron ore prices is sending ripples throughout the broader steelmaking raw materials market. Coking coal and coke prices on the DCE fell on Wednesday, reflecting the weaker demand from steel mills. Steel futures on the Shanghai Futures Exchange also experienced losses, with rebar, hot-rolled coil, wire rod, and stainless steel all registering price declines.

The recent data on the apparent consumption of steel products in China further underscores the weakness in demand. According to information provider Zhaogang, consumption of medium plate, hot-rolled coil, and construction steel products has witnessed a sharp decline this week. This data suggests that steel prices may also face further downward pressure in the coming days.

Looking Ahead: Uncertainties Cloud Iron Ore Market

The current iron ore price slump underscores the ongoing uncertainties surrounding the market. While China’s stimulus measures and potential restocking activities ahead of holidays could offer temporary support, the longer-term outlook remains clouded. The interplay between softening Chinese steel demand and rising supply levels will be crucial in determining the future direction of iron ore prices.

Source: Mining.com


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