Iron Ore Bludgeoned to Record Low in Asia on China Steel Concern

  • Some mills in China may have halted output, Maike's Dang says
  • `We still expect prices to weaken further,' ANZ's Hynes says

Iron ore contracts in Asia slumped to records amid speculation that mills in China are reining in steel production as they battle losses, slumping prices and tighter credit, hurting demand for the raw material that’s mainly shipped from Australia and Brazil.

Futures sank 1.8 percent to 331 yuan ($51.89) a metric ton on the Dalian Commodity Exchange, the lowest close since trading started in October 2013, while the SGX AsiaClear contract in Singapore fell to a fresh low. Losses on markets in Asia can signal declines in the Metal Bulletin Ltd. price for 62 percent content spot ore in Qingdao, which is updated once a day. That was at $46.35 a dry ton on Wednesday from $45.58 a day earlier, a four-month low.

“Steelmakers are going through a very difficult time and a number of them have halted output,” Dang Man, an analyst at Maike Futures Co. in Xi’an, China, said by phone. “Given the poor credit conditions facing steel mills, they’ll only buy iron ore when they’re fairly confident the price drop can be arrested. Otherwise it’ll be another loss for them.”

‘Weaken Further’

Iron ore has been pummeled this year by rising low-cost supplies from Rio Tinto Group and Vale SA, and faltering demand for steel in China, where mills account for about half of the global production. The China Iron & Steel Association forecast on Wednesday that steel production will contract almost 3 percent next year. Iron ore in Qingdao bottomed at $44.59 on July 8, the lowest level in daily price data dating back to May 2009.

“For iron ore and steel, we still expect prices to weaken further from here,” Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd., said in an interview in Shanghai. “Iron ore in particular, could make fresh lows in not too-distant future.”

Iron ore may test the $40 level before year-end as demand faces challenges from steel-output cuts, mainly in China, Standard Chartered Plc forecasts. China’s demand for the commodity is peaking and may contract next year and in 2017, analyst Judy Zhu wrote in a report last week, adding that falling steel prices, deteriorating consumption and lower steelmakers’ margins imply more output reductions.

Crude-steel output in China will collapse by 23 million tons to 783 million tons next year, according to a forecast from the China steel association. Last month, the nation’s leading industry group reported wider industry losses and noted that while official interest rates in China have been cut, some mills faced higher funding costs.

“Chinese steel mills continue to clock up losses,” Matthew Hope, an analyst at Credit Suisse Group AG, said in a report Thursday that flagged the possibility that iron ore supply may drop in the first half of 2016 after interruptions at mines in Brazil and delays to a new project in Australia. “But few mills are idling. Instead they are lowering their iron ore stocks and holding on.”

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