Benchmark Dalian iron ore futures slumped more than 3% to their lowest in six weeks on Wednesday, after China's top steelmaking city of Tangshan issued a second-level smog alert that requires mills to further limit operations. The Dalian Commodity Exchange's most-traded iron ore contract, with January 2020 expiry, ended down 3.2% at 617 yuan a tonne. Earlier in the session, the contract fell up to 3.5%, hitting its weakest level since September 2.
The steelmaking raw material's losses widened after China outlined its annual anti-pollution plan for the winter in a document released by the Ministry of Ecology and Environment. Tangshan's move means more drastic steel production restrictions, after the city ordered steelmakers last week to reduce sintering, pelletising and blast furnace operations from October 10 until October 31, a Shanghai-based trader said.
The latest emergency measures by Tangshan to address worsening air pollution were scheduled to take effect on Tuesday, according to local government-backed media, which did not say when the alert would be lifted. Of the 33 Tangshan steelmakers, 30 have already halved sintering, pelletizing, lime kiln and blast furnace operations since October 10, according to Mysteel consultancy.
Concerns about demand prospects for steel products and raw materials have dragged down the Chinese iron ore benchmark by about 4% over the last three sessions. Chinese steel demand is forecast to grow just 1% next year, compared with this year's projected growth of 7.8%, according to the World Steel Association, which blamed the ongoing trade conflict between China and the United States.
"It is unlikely that the Chinese government will reintroduce substantial stimulus measures as it continues to hold a balance between containing the slowdown and pushing forward its economic restructuring agenda," the Belgium-based group said on Monday. Iron ore's spot and futures prices have slumped more than 20% from July's five-year peaks, also because of signs that global production has stabilised after a tailings dam disaster in Brazil early this year tightened supplies.
Global miner Rio Tinto said on Wednesday its third-quarter iron ore shipments rose 5% on a year-on-year basis, helped by higher demand from Chinese steelmakers.
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