Iron ore prices have slumped to their lowest level since 2022, trading near $90 per tonne, as China’s steel industry grapples with ongoing challenges.
The China Iron & Steel Association (CISA) has advised steel mills to exercise caution in increasing output too quickly, fearing that premature production boosts could stifle any potential post-summer recovery in the steel market.
The steelmaking material has seen a significant decline, dropping by more than a third this year.
Weak steel consumption in China has led to substantial losses for steel mills, creating a tough environment for iron ore prices.
Traditionally, steel demand picks up after the summer, but this year poses a critical test for producers.
CISA warns against overproduction
“There will be a certain degree of recovery in steel demand through September and October, which is favourable for the steel market,” CISA said in a note following a meeting with steel producers in southern China.
However, the association also emphasised the need for caution, warning that any impulse to restart production too quickly could result in a temporary improvement rather than a sustainable recovery.
China’s steel industry is facing a prolonged crisis, largely driven by the nation’s property market slump.
The downturn has significantly reduced steel demand, leading to fierce competition among producers and an oversupply of steel.
This has created a “challenging environment for iron ore” in the near term, according to a note from Goldman Sachs earlier this week.
Iron ore futures hit new lows
Iron ore futures in Singapore dropped by as much as 2%, reaching $90.70 per tonne, the lowest price since November 2022.
By 11:51 a.m. local time, prices had stabilised slightly at $90.85 per tonne, marking a 10% decline for the week.
Analysts believe that prices may find some support below $100 per tonne, as this is the threshold where high-cost miners struggle to make profits.
Despite these predictions, inventories of iron ore at China’s ports remain unusually high, exceeding 150 million tonnes.
This stockpile has grown as steel producers scaled back output in July and August.
The recent comments from CISA, which echoed earlier warnings to the industry, were delivered during a gathering of steel producers in the southern provinces of Guangdong and Guangxi, regions particularly impacted by low steel prices and margins.
“Mills are losing money, and iron ore inventories are piling up at ports every day,” Zhao Liang, head of research at GF Futures Co., told Bloomberg in a report.
“The fundamental picture supports the slide in prices. Overall, it’s due to weak steel demand — people are pessimistic.”
As China’s steelmakers navigate these turbulent times, the outlook for both steel and iron ore remains uncertain.
Without a significant improvement in demand, the industry may continue to face challenging conditions in the months ahead.
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