Despite the temporary break in China’s iron ore and steel market trading activity due to the national holidays, indicative prices for the raw material slumped again amid further tightening of production cuts and mounting troubles in the country’s property sector.
Iron ore futures in October contracts on the Singapore Exchange (SGX) fell by $8.43/t to $93.3/t as the prospects for China’s iron ore demand continued to deteriorate.
Indicative spot price for Australian iron ore fines 62% Fe dropped by $8/t to $93/t CFR, the lowest level in 16 months, though business activity in the spot market ceased for Sunday-Tuesday amid the celebration of Mid-Autumn Festival.
The first reason for worsening demand expectations were heavier output restrictions in China. Jiangsu and Zhejiang province, which have not met their energy consumption targets so far and have been ordered to reduce steel production till the end of the month, according to Chinese local press.
Besides, on September 16, China’s environment ministry announced a draft plan, which proposes to extend winter production cuts on cities from 64 regions in Hebei, Shanxi, Shandong and Henan provinces instead of 28 regions in previous years.
The second bearish factor, widely discussed in the global market, is the anticipated bankruptcy of China’s property giant Evergrande. The company may announce its default on a $83.5 million interest payment due on September 23, when holidays in China are over, according to numerous market and media sources.
No aid has come to the company from the government yet. “What’s really new [in China’s steel market] is the accelerating deterioration in China’s property market, with Evergrande’s liquidity issues clearly front and centre of that,” said co-head of mining research at UBS, Lachlan Shaw, quoted by the Australian local press.