Iron ore prices fall below $100

By Metal miner

Iron ore prices hit the headlines again after falling below the psychological barrier of $100 a tonne on Monday. It was the fourth time he had crossed the threshold in two weeks. This recent drop was almost 30% below iron ore’s peak of $144 a tonne, which it hit in January this year. As a result, Singapore futures fell 1.7 percent to $99.40 a tonne on Monday afternoon.

According to one Reuters The report, a sixth straight week of declines, stems from China’s combined steel woes, while port stocks of the raw material stagnated. The report added that the benchmark Singapore Futures contract has fallen every week since July 5.

Many analysts have already predicted that iron ore prices will be considerably lower for the rest of 2024 due to the persistent decline in China’s construction sector, which has led to a sharp drop in steel prices. This crash made many steel mills unprofitable, making them even more reluctant to buy iron ore.

A maze of market risks for iron ore prices

Iron ore was one of the worst performing major commodities of the year, falling more than 25%. The story’s only silver lining is in the Australiawhere iron ore was still trading at about $100 a tonne, despite the problems with China. That said, Australia’s Department of Industry, Science and Resources recently released a forecast that says prices will drop to around $96 per tonne by the end of this year.

Again, much of the fresh falling iron ore prices it results from a worsening situation in China’s steel mills, which is central to determining prices. With steelmakers intensely focused on maximizing profits and minimizing losses, a significant deterioration in their margins has led to a further decline in iron ore prices.

Goldman Sachs warns of a supply crunch

The aforementioned Reuters report quoted a Goldman Sachs analyst as saying that as iron ore consumption continued to fall, the market needed to see a drop in supply to prevent it from slipping further into oversupply. She added that a price below $100 is needed to trigger a sufficient supply response.

Meanwhile, the dire financial situation of China’s steel mills is becoming more apparent by the day, with almost no mills reporting profits. This poor condition may lead to a further cut in production, exacerbating downward pressure on iron ore prices. Steelmakers’ margins had already fallen to current levels and even lower in the first quarter. The price peaked in January 2024 and fell to a low of $98 a tonne in April as the industry struggled to maintain profitability.

Attempts to revive China’s economy continue to fail

So far, China has tried almost every trick in the book to revive its economy, including interest rate cuts. However, even this received a tepid response from commodities that typically benefit most from such actions, such as iron ore. A few weeks ago, the People’s Bank of China cut the seven-day reverse repo rate from 1.8% to 1.7%, before later cutting benchmark lending rates by the same amount.

Despite this significant move – the first broad interest rate cut since August 2023 – iron ore and copper, which remain closely tied to China’s construction and manufacturing sectors, saw minimal increases in demand.

Falling iron ore prices are feeding China’s hunger for inventory

Clearly, iron ore prices continue to move in a bear market. Coincidentally, even as nations like India continue to complain bitterly about cheap Chinese steel exports flooding their domestic markets, China’s iron ore imports have reached about 612 tonnes. This represents an increase of approximately 6.8% in the first half of 2024 compared to the same period in 2023.

However, some analysts say the ore had nothing to do with steelmaking but was used to rebuild stockpiles. Some proponents of this theory, such as Reuters columnist Clyde Russellsaid the unclear patterns of China’s rather large and unexplained commodity imports in the first half of 2024 were more influenced by price changes than economic indicators.

By Sohrab Darabshaw

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