Iron ore prices fell on Monday as China’s subdued trade data for May and narrowing profit margins for the country’s steelmakers – responsible for more than half the globe’s output – dampened market enthusiasm.
China imported 89.8 million tonnes of iron ore last month, substantially lower than the 98.6 million tonnes it bought in April and 102.1 million tonnes in March.
“The proportion of iron ore shipped to China from Australia fell a lot recently, and we can see the decline to continue in coming months,” said Wang Yingwu, analyst with Huatai Futures in Beijing.
The data also showed China’s May steel exports plunged 34% from a month earlier to 5.3 million tonnes.
Tight global iron ore supply remains a key issue that has kept prices high
Capital Economics expects import volumes to fall further in the coming months as policy support continues to be gradually withdrawn.
“We forecast that China’s imports of industrial commodities will decline in the coming months, which is a major factor behind our relatively bearish near-term outlook on the prices of industrial metals,” said the research consultancy in a note.
The most-traded September iron ore on China’s Dalian Commodity Exchange ended daytime trading 4.4% lower at 1,118 yuan ($174.70) a tonne.
Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) were down 2.4%, changing hands for $202.42 a tonne, according to Fastmarkets MB, on Monday afternoon.
“The sharp drop in steel prices…has led to a sharp drop in the profits of steel mills,” Sinosteel Futures analysts said in a note.
Steel demand in China has slowed down, causing a “large, short-term market volatility,” they said.
Tight global iron ore supply remains a key issue that has kept prices high.
On Friday, Vale interrupted production at its Timbopeba mine and part of its Alegria mine after prosecutors ordered the evacuation of an area around the nearby Xingu dam, in the state of Minas Gerais.
The closures will reduce its output by 40,000 iron ore tonnes a day, Vale said.
“It is unlikely the global balance will feel the full weight of this supply vacuum as Vale fights to overturn this ruling as quickly as it was imposed,” said Atilla Widnell, managing director at Navigate Commodities in Singapore.