Iron ore futures in China and Singapore slumped to their lowest ever on Monday, pressured by rising supply and a weaker Chinese steel market that have pulled down spot prices to their cheapest since September 2012. With prices down 25 percent this year, a sustained decline in iron ore threatens to squeeze out high-cost producers, led by miners in top consumer China. That means China's iron ore imports may stay strong unless steel demand weakens to such an extent that mills curb output.
"Since the rebar has been so hit, it's taken out the confidence of the Chinese steel market," said Jamie Pearce, head of iron ore broking at SSY Futures. Rebar futures fell for a fourth session on Monday to near record lows reached on Friday. The most-traded rebar for October delivery on the Shanghai Futures Exchange eased 0.6 percent to settle at 3,080 yuan ($490) a tonne, after hitting an all-time low of 3,063 yuan in the previous session.
Iron ore futures at the Dalian Commodity Exchange touched a low of 703 yuan a tonne, the weakest for a most-active contract since the bourse launched the product in October last year. It closed down 2.1 percent at 707 yuan. At the Singapore Exchange, iron ore for delivery in July fell 1.3 percent to $97.75 a tonne, the lowest level since it launched iron ore futures in April 2013. The August contract dropped 1 percent to $97.84. "Now that we broke through $100, I think that's a very bearish sign. It shows you there's a lot of supply around," said a trader in Singapore.
Top iron ore miners Vale, Rio Tinto and BHP Billiton are boosting output, confident their low-cost business will prevail over higher-cost suppliers to China. These miners have a cash cost of as low as $20 a tonne, about a fifth of what Chinese miners spend. But the capacity of China to absorb the increased supply is at risk with growth in the world's second-largest economy slowing down. Economists say Beijing may need to launch more stimulus measures to achieve its growth target of 7.5 percent for 2014. Steel output at China's top producing Hebei province slipped 7.1 percent in April from a year ago despite increasing production levels nationwide, as Beijing's war on pollution showed it is curbing industrial output in the region.