Iron-ore prices have sunk to their lowest level since July as concerns resurface about demand for the steelmaking ingredient from the world’s No. 1 steelmaker, China.
The price for ore delivered to China dropped to $49 a metric ton Wednesday, down 1% for the day and 12% in the past month.
Traders and analysts say fears are intensifying again on the supply side as well. A pullback by small producers, including in the U.S. and Mexico, had helped prices stabilize at $50 to $60 since the summer. But major Australia-based miners such as Rio Tinto PLC and BHP Billiton PLC are continuing to pump out record amounts of iron ore.
“As the ability of economic growth to pull along steel consumption weakens, the sharp decline in demand for steel products is very visible,” Zhu Jimin, deputy head of the China Iron & Steel Association, said this week. “The steel industry has fallen into an environment of total losses. Prices of steel products continue to set new record lows, and steel mills face severe losses, in addition to currency remittance losses.”
Slowing domestic steel demand has led China’s steel companies to export more this year, but importing nations have hit back with tariffs to protect their own steel industries. World production of crude steel declined to 130.94 million metric tons in September from as much as 140.02 million tons in May, according to the World Steel Association.
Earlier this month, SinoSteel, China’s second-largest importer of iron ore, postponed interest payments due on $315 million of onshore bonds. China’s Maanshan Iron & SteelCo. Ltd. on Tuesday forecast an annual loss for this year.
Some are reassessing their fundamental outlook for China’s steel industry. BHP itself earlier this year abandoned its long-held forecast that Chinese crude-steel demand would eventually exceed 1 billion metric tons. It now expects China’s appetite for steel to peak between 935 million and 985 million tons.
As a result, China’s demand for seaborne iron ore, much of which comes from Australia, could start to fall, analysts say.
“We now expect a slow but steady declining trend in import volumes through the end of the decade,” analysts at Macquarie said in a note to clients. “On our modeling, China doesn’t ever reach that 1-billion-ton mark long expected by major producers.”
Rio Tinto, the world’s No. 2 iron-ore producer, has stuck with its billion-ton projection, seeing production at about that level by the end of next decade.It argues China, whose production is currently around 800 million tons a year, will need more steel as old homes are replaced with taller, more steel-intensive buildings and exports of steel products and machinery rise.
But Rio is looking increasingly lonely in its optimism.
“Chinese iron-ore imports, resilient to date, are on the cusp of turning negative as its steel industry grapples with unsustainable margins and leverage,” analysts at Liberum Capital said in note Thursday, as it downgraded its rating on both BHP and Rio to sell from hold.
Source: http://www.wsj.com/