Iron ore has become the punch bag of the commodities world. The raw material is down 20% in September, putting it on course for the first back-to-back quarterly loss since 2015, and there’s rising concern that the final three months of the year may bring further declines.
“We anticipate the price of iron ore to remain under pressure in the coming quarter,” Geordie Wilkes, a London-based analyst at Sucden Financial Ltd, said in an email.
Global demand growth will be slower this half than the first six months, while the market remains strongly supplied, according to Wilkes.
Benchmark spot ore has plunged amid concern that China’s vigorous campaign to curb pollution this winter by ordering plant halts will sap steel production and roll back demand for ore at a time when seaborne supplies are gaining strength.
Goldman Sachs Group Inc has warned even though China’s demand for steel remains robust, iron ore prices may extend losses. Asia’s top economy is central to iron ore’s fortunes as it’s the largest user.
“As steel production starts to decline, and with it demand for iron, we see this as a reason behind the recent sell-off,” Wilkes said. While iron ore stockpiles “have also fallen they remain at elevated levels, and we anticipate inventories to remain high given the lower-quality ore we expect to be in stock”.
Spot ore with 62% content in Qingdao fell 2% to US$62.89 a dry metric tonne on Thursday, the lowest since July 7, according to Metal Bulletin Ltd. The commodity, which is poised for the biggest monthly loss since May 2016, is down 3.2% this quarter after a 19% slump between April and June.
Lower prices are hurting miners, especially suppliers of lower-grade ores, which have seen weaker demand than less-polluting, higher-quality material. In Australia, Fortescue Metals Group Ltd has fallen 14% in September, putting the stock on course for the biggest loss since April.
Futures have also sunk. On the Dalian Commodity Exchange, the most-active contract has collapsed 21% this month, hitting the lowest since June this week. In Singapore, SGX AsiaClear futures are down 16% in September, although they traded 1.7% higher at US$63.50 a tonne on Friday.
In the near term, the market will go quiet, with a week-long nationwide holiday in the first week of October. Later the same month, China’s Communist Party’s is due to hold its twice-a-decade congress in Beijing.
In the lead-up to the curbs, steel production in China has been running at a record pace.
Sucden’s Wilkes described that process as front-loading before the winter cuts kick in. The mainland’s steel industry accounts for about half of global production.