Iron Ore Prices Continue to Plunge Due to Reduced Chinese Production

By: | January 23rd, 2025

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Photo by yasin hemmati on Unsplash

Iron ore prices continue to tumble amid weaker Chinese metal output. Hardly surprising, really, because China consumes over 70% of the world’s seaborne iron ore, primarily for construction and manufacturing. The country is the biggest steel produced globally well. Thus, its moves in the sector have always had a big impact on the industry. Weaker performance in the country’s equity markets also impacted iron ore prices.

The most-traded May iron ore contract on the Dalian Commodity Exchange (DCE) dropped 2.21% to 751.5 yuan ($102.54) per metric ton, marking its weakest point since November 19. Furthermore, the benchmark February iron ore on the Singapore Exchange also eased by 1.74% to $96.5 per ton by mid-morning, reflecting the broader downward trend across markets. 

Meanwhile, output from Chinese blast-furnace steel producers continues to decline as mills ramp up maintenance work ahead of the Chinese New Year, according to Chinese consultancy firm Mysteel. This routine slowdown in hot metal production typically results in reduced demand for raw materials, such as iron ore, contributing to weaker prices.

The latest development created a market concern, as lower demand from China could lead to excess iron ore supply globally, which could push down the prices even further. This could affect other major exporters, like Australia, Brazil, and South Africa, whose economies rely heavily on iron ore exports. The price drop could also result in a slowdown of industrial activity and weaker economic growth, with iron ore producers being forced to squeeze profit margins.

Adding to the pressure, global iron ore supply has remained high, driven by strong shipments from Australian mines, as reported by Hexun Futures. Over the next week, daily molten iron output is expected to continue declining, while iron ore inventories are likely to increase slightly.

Economic uncertainty in China has also played a role. Investor concerns over Beijing’s ability to revitalize its struggling economy drove the yuan and Chinese stock markets lower on Monday. Although domestic services activity showed growth last month, export orders fell, reflecting the ongoing trade risks and external pressures facing the country.

However, there is a glimmer of hope, as analysts predict that the upcoming holidays could offer some short-term stability. “With the Chinese New Year holiday beginning in just four weeks’ time, the pre-holiday stockpiling of iron ore will lend some support to prices of the feedstock this month. But ore prices will face downward pressure as the seasonal decline in hot metal output at mills will see slow ore replenishment,” Mysteel said.

In other commodities, coking coal inched up by 0.3% on the DCE, while coke prices fell by 2.1%. Most steel products on the Shanghai Futures Exchange saw slight losses, with rebar down 0.85%, hot-rolled coil slipping by 1.0%, and wire rod dropping 0.03%. The only outlier was stainless steel, which posted a 0.55% gain.

Ashton Henning

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