Iron ore price holds above $200 a tonne; impact of Chinese slowdown needs to be monitored

Iron ore prices rose to $ 200 a tonnes, pressured by concerns about demand prospects for the steelmaking raw material in top steel producer China. According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $218.66 a tonne. 

“There are early signs of a turning point in Chinese demand with falling Chinese steel prices crushing margins for steel mills,” said Justin Smirk, a senior economist at Westpac in Sydney.

Declining cement prices in China, some rebar makers possibly starting to incur losses, and excavator sales in May posting the first monthly drop since early 2020 point to slowing construction activity that has also been hampered by an unfavourable weather, Smirk said.

China’s steel exports also remained weak, hit by tepid demand in Southeast Asian countries – its largest buyers of the construction and manufacturing material – due to a fresh wave of covid-19 infections in the region, Mysteel consultancy reported.

Concerns about China’s efforts to curb steel output this year to meet its carbon emissions goal also kept market participants largely at bay, even as worries persisted over the tightness in global iron ore supply.

Iron ore had been on an upward trend over last month, bolstered by the resumption of steel production in key hub Tangshan.

“Steelmakers need to cut back rather than merely slow excessive production rates because raising prices of new production will not solve a fundamental problem,” Fastmarkets said in a note. “While the Chinese government remains concerned by excess output, do not be surprised if steel production falls and in turn hot metal prices correct in the short term.”

“The growth of China’s steel demand in the second half will be slower than the first half,” said Wang Yingsheng, chief economist of the China Iron and Steel Association (CISA), while speaking at the opening ceremonies for the three-day Singapore International Ferrous Week.

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