Spot iron ore prices fell to a fresh 10-year low below $40 a tonne on Friday and were set for their steepest weekly decline in five months as falling Chinese steel demand increased a global glut of the steelmaking raw material. More steel mills in China's Shanxi province have halted production due to shrinking demand and shortage of cash, industry consultancy Custeel said.
Iron ore prices for immediate delivery to China's Tianjin port dropped 2.2 percent to $39.40 a tonne, the lowest ever recorded by price assessor The Steel Index (TSI), which began compiling data in 2008. Prior to TSI's records and ahead of the spot-based system that followed the annual pricing era, it was the weakest since 2005, according to data compiled by Goldman Sachs. Iron ore prices fell 7.4 percent for the week, their steepest slide since declining almost 8 percent in early July.
Bids were scarce in a market swamped with offers for cargoes from both traders and miners hoping to sell before prices fall further, traders said. Prices have dropped sharply "but mills want cheaper prices," said a Shanghai-based iron ore trader. Cash-strapped Chinese steel mills are dumping iron ore stocks, selling at a loss to shore up cash flow in the latest sign of the sector's worsening crisis, steel mill and trader sources said.
"The iron ore spot market remained in chaos, as some seemingly panicked offers and deals were made at lower levels," said TSI in a note. Rebar, a construction steel product, hit a record low of 1,618 yuan ($253) a tonne on the Shanghai Futures Exchange this week. The May contracts closed flat at 1,650 yuan on Friday.
With the sustained fall in steel prices and slowing demand, "steel production is expected to fall further, so iron ore demand will keep weakening," the China Iron and Steel Association said in a report. On the Dalian Commodity Exchange, the most-traded May iron ore fell 1.4 percent to end at 289 yuan per tonne after touching an all-time low of 284 yuan.
The recent steep fall in freight rates for key iron ore routes suggests that "any normal season pickup in restocking activity by Chinese buyers may have already come to an end," ANZ said in a note. Andrew Mackenzie, chief executive of top global miner BHP Billiton , said on Thursday that the only way to compete in a world where there was ample capacity to meet the needs of countries like China was to keep cutting costs, which means prices will keep coming down. "That is the spirit of competition that we play in," he said.
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