Spot iron ore prices hit a new 10-year low on Wednesday even as Shanghai steel futures eked out a 2 percent gain, as a global glut in the steelmaking raw material overwhelmed a market hit by shrinking Chinese demand. "It appears that the iron ore market is in a super bear cycle," said Kelly Teoh, an iron ore derivatives broker at Clarksons Platou Futures in Singapore.
"Prices continue to remain weak and don't appear to have hit a bottom at the moment." Iron ore for immediate delivery to China's Tianjin port fell 2.4 percent to $40.60 a tonne, according to The Steel Index (TSI). It was the lowest since TSI began compiling data in 2008. Based on annual pricing that preceded TSI records, it was the lowest since 2005.
The most-traded May steel rebar future on the Shanghai Futures Exchange closed up 1.8 percent at 1,659 yuan ($259) a tonne, but off the day's high of 1,673 yuan. It touched 1,618 yuan on Tuesday, the weakest for a most-active contract since the bourse launched rebar futures in 2009. China's steel consumption fell 5.7 percent to 590.47 million tonnes in January-October, the China Iron and Steel Association said last month, forcing many loss-making producers to either curb output or shut permanently.
Amid weak demand, stocks of imported iron ore at China's ports rose last week to the highest since May at 87.65 million tonnes, data from SteelHome showed. "While the world remains flooded with iron ore, we believe Chinese steel consumption is at or close to a structural peak. Against that backdrop, we expect the iron ore market to remain oversupplied, keeping prices low for longer," said Carsten Menke, analyst at Julius Baer in a note.
The bank lowered its three and 12-month price targets to $40 and $35 per tonne. On China's Dalian Commodity Exchange, May iron ore gained 0.2 percent to 293.50 yuan a tonne. "When you have spreads compress, maybe you have Dalian buyers on the back of that (but) it really comes down to physical market sentiment at the moment and I think that will continue to weaken," said a London-based iron ore broker.
The world's top iron ore producer Vale said on Tuesday it planned to cut capital investments by around a third to about $6 billion next year. Vale has also continued to cut production costs. The cash cost of Vale iron ore in China fell 3.7 percent to $31.20 a tonne in October from the $32.40 average in the third quarter.