BEIJING: Iron ore prices dropped on Friday, as tepid near-term demand and a higher-than-expected increase in portside inventory in top consumer China undermined investor sentiment and dented buying appetite for the key steelmaking ingredient.

The most-traded May iron ore on China’s Dalian Commodity Exchange (DCE) ended daytime trading 1.38% lower at 1,000 yuan ($139.56) a metric ton. It closed the week with a rise of nearly 3%.

The benchmark February iron ore on the Singapore Exchange dropped 1.87% to $138.5 a ton, as of 0705 GMT, shedding 0.2% for the week. “It’s a normal downward correction after sentiment cooled as the market has digested the news of PSL,” said Chu Xinli, a Shanghai-based analyst at China Futures.

China’s central bank made 350 billion yuan in loans to policy banks through its pledged supplementary lending (PSL) facility in December, which is believed to support ore and steel demand.

“Weighing on prices is also receding ore demand as reflected by the persistent fall in hot metal output, which is currently lower than a year-ago level,” Chu added.

Average daily hot metal output among mills surveyed slipped for a tenth consecutive session by 1.4% on the week to 2.18 million tons, as of Friday, which is also down 1.2% from the same period a year ago, data from consultancy Mysteel showed.

Moreover, the relatively high ore prices have propelled some mills to take a watchful stance for the moment, showing little interest in placing orders now with the expectation that prices will drop later in January and February, said Pei Hao, a Shanghai-based analyst at the international brokerage FIS.

Portside iron ore inventories climbed by 2.1% on the week to 122.45 million tons, as of Jan. 5, the highest since August 2023, according to Mysteel data. Other steelmaking ingredients also weakened, with coking coal and coke on the DCE slumping 4.15% and 3.52%, respectively.

Steel benchmarks on the Shanghai Futures Exchange were lower as well. Rebar dipped 1.39%, hot-rolled coil declined 1.71%, wire rod lost 1.76% and stainless steel slid 2.19%.