[miningmx.com] — SPOT iron ore prices slumped more than 7% in the deepest decline ever for the steelmaking raw material on thin demand from top importer China, where slower growth has dented steel consumption, with offers falling further on Wednesday.
Iron ore has lost nearly 30% since early September when falling steel prices in China suggested slowing demand from the construction sector, which was behind the surge in steel production to a record pace earlier this year.
Losses deepened when the Chinese returned from a week-long holiday earlier this month as steel prices continued to drop in what was normally a strong consumption season.
Iron ore fell 7.2% to $128.50 a tonne on Tuesday, according to Platts. It was the biggest percentage drop for the reference price index since Platts began publishing it in November 2008.
Global miners including top iron ore producer Vale and second-ranked Rio Tinto use the Platts index, based on spot transactions in China, to fix supply contract rates for clients.
The rapid drop in iron ore prices “implies demand for steel in China is pretty bad and a lot of steel mills have to cut production so the whole economy is bad”, said Henry Liu, regional head of commodity research at Mirae Asset Securities in Hong Kong.
“If iron ore prices drop so much, it doesn’t mean (Chinese mills’) profit margin will improve because steel demand has been dropping,” he said, adding prices could hit bottom at around $120.
The price of hot rolled coil in China fell 8.7% to 4,123 yuan ($648) a tonne at the end of last week, while rebar shed more than 6% to 4,296 yuan a tonne, according to data compiled by Bank of America-Merrill Lynch.
Steelmakers hurt
Weak steel demand across Asia cut profits of Japan’s two biggest steelmakers – Nippon Steel Corp and JFE Holdings Inc – in the fiscal six months to September, and both slashed their full-year outlook.
JFE said steel prices in Asia will remain stagnant because of slower Chinese demand and larger-than-expected supply from South Korea.
The world’s biggest steel consumer and producer, China, buys around two thirds of global seaborne iron ore, with imports exceeding 600 million tonnes in 2010.
“Steel mills have started to cut production and have suspended iron ore purchases, while miners keep on producing and delivering spot cargoes, so we see iron ore prices diving these days,” said an iron ore buying official with a mid-sized steel mill in south-central China.
Rio Tinto on Tuesday blamed the steep fall in iron ore prices to a strategy by bigger rival Vale to divert shipments destined for Europe to China.
On Wednesday, Australian iron ore miner Fortescue Metals Group said it could take months before prices can recover as Chinese steel mills work off inventories.
Sellers to China cut prices further on Wednesday, with Australian 61.5% grade Pilbara iron ore fines quoted at $128-$130 a tonne, including freight, said Chinese consultancy Umetal. That was down $6 from Tuesday and $18 cheaper from a week ago.
Indian 63.5/63-grade ore was offered at $144-$146 a tonne, down $2 from Tuesday and $14 lower from last week.
Lower prices of forward swaps suggested further falls in spot rates.
