Lower steel margins and strict production controls in China are driving down iron ore prices, according to a report by CRU Insight. The price of 62 per cent ore fines imported to China’s Qingdao port was trading at $US147.65 ($202.95) per dry metric tonne on Wednesday, a slight improvement after last week’s significant falls.
Yet it remains a far cry from the record high of more than $US230 per dry metric tonne recorded in May. CRU Insight principal analyst Erik Hedborg and senior analyst Richard Lu, discussing iron ore prices in a new report, said Chinese demand for spot volumes has led to sharper than expected declines. The report found that China, which accounts for around 75 per cent of seaborne demand, has reported lower steel margins and reduced steel output.
“Steel margins have declined, especially for longs producers that are struggling with weak demand from China’s construction sector,” the report stated. “Many steelmakers, especially smaller ones, are now losing money on every tonne of steel they are producing.”
Chinese steel makers have been told to reduce output after a record 290 million tonnes produced in the second quarter of 2021, which has caused an oversupply of iron ore at steel mills. Australian iron ore producers such as Rio Tinto have also faced supply issues, resulting in lower shipments compared to the previous year. However, CRU doesn’t expects prices to drop to the $US60-per-dry-metric-tonne low that was witnessed during 2015 and 2016.