Iron ore price declines steeply on heels of weak Chinese rebar futures

Iron ore prices sustained a considerably heavy decline on Tuesday. With this, it slipped by the largest margin of a day in recent months.

According to Metal Bulletin, the spot price for benchmark 62 percent fines went down by 4.26 percent to US$87.59 (AU$114.23) a tonne. The fall now has expanded to 5.4 percent since March 16. However, the overall decline this year has been recorded as 11 percent. Thursday’s downslide was the largest in terms of percentage since Dec. 14. With regard to lower grade ore, the price for 58 percent fines went down by 2.88 percent to reach US$61.45 (AU$80.14) a tonne.

The steep decline in the spot markets came on the heels of a drop in Chinese rebar futures earlier in the session, which caused iron ore futures to drop as well. “Zhou Xiaochuan, the governor of the People’s Bank of China, told G20 finance ministers and central bank governors meeting on Monday that gradual deleveraging remains one of the main themes of China’s monetary policy for this year,” Metal Bulletin said. “Market participants said his comments may have led to futures — particularly the rebar contract — tumbling during the day.”

Iron ore future for May 2017 on the Dalian Commodity Exchange closed with a fall of 1.51 percent at 685.5 yuan (AU$129.6). At the same time, rebar futures on the Shanghai Futures Exchange dropped, albeit by a smaller difference, by 1.02 percent at 3,488 yuan (AU$659.44).

Chinese steel consumption has enhanced by 8 percent in the first two months of 2017 than the same period last year. According to Goldman Sachs, this reflects that the steel inventory is low. “Given that March and April are the peak demand season, we expect inventory levels to remain low until late April and price volatility to stay elevated in coming weeks,” the banking company said in a report.

According to Macquarie, the latest Chinese steel survey showed less optimism for iron ore. “The overall outlook for the steel market remains constructive; however, the restocking cycle in iron ore appears to be nearing an end, with iron ore traders the least optimistic group in our survey,” it said.

As of March 17, rebar inventory among Chinese traders reached 7.2 million tonnes. Data from SteelHome consultancy reveals this was the lowest number since early February. Goldman said steel margins have touched virtually record-breaking highs for Chinese mills. They are forecast to last through season of peak demand.

On March 17, as much as 131 million tonnes of iron ore was at the major ports in China. It is the highest recorded volume since SteelHome began tracking data in 2004.