Iron ore plummets Monday to reach its lowest in seven weeks

Iron ore spot prices sustained a heavy loss on Monday, marking the fifth loss in the previous six sessions. Falling by 4 percent, the mineral slid down to its minimum in seven weeks.

As noted by Metal Bulletin, the spot price for benchmark 62 percent fell by 4.1 percent. With this, it has now declined by 14 percent since reaching this year’s high of US$94.86 (AU$124.34) per tonne on Feb. 21. It has recorded its lowest reading since Feb. 6.

The downfall has also affected the rise seen this year, dropping it to 3.4 percent. With regard to lower grade ores, the benchmark with the price for 58 percent fines tumbled by 5.6 percent to reach US$54.83 (AU$71.87) per tonne. It has now touched its minimum value since Dec. 22.

“China’s spot rebar prices fell on Monday after a sharp drop in the billet market over the weekend,” Metal Bulletin said. “Billet prices plunged 120 yuan (AU$22.88) per tonne during the weekend after a decrease of 40 yuan (AU$7.63) per tonne late last Friday, which weighed on rebar prices in the spot market. Poor performing futures also added to the bearishness. Market participants are mostly expecting prices to fall further amid weak demand and high inventory levels.”

The most active rebar contract on the Shanghai Futures Exchange declined 3.97 percent to reach 3,026 yuan (AU$576.84) a tonne. At the same time, iron ore on the Dalian Commodity Exchange plummeted by 5.95 percent to reach 545.5 yuan (AU$103.99) per tonne. Previously, it had reached as low as 541 yuan (AU$103.13), the lowest reading since Feb. 8.

The recent declines come amid an investigation into steel overproduction by the Chinese province of Hebei, which serves as a major steel-producing area. The probe was launched after reports emerged that steel mills stepped up their production notwithstanding mandatory cuts imposed by the government.

As noted by a provincial notice, issued on March 25 this year, an investigation was launched by China’s central government to look into firms in Tangshan that have "restricted but not cut production, restricted production but not actually cut emissions, and cut capacity but actually increased output." The notice, which was circulated on Monday, was seen by Reuters.

The production levels of Tangshan are around 90 million tonnes a year, which outweighs the overall production of the United States. In an effort to enhance prices and make way for relaxation on sector debts, China has said it will be cutting steel capacity by between 100 million and 150 million tonnes in the period between 2016 and 2020.