Bloomberg - Iron ore sank below $100 a ton as China's moves to clean up its heavy mining sector fuelled a sudden and brutal collapse.
Prices have more than halved since peaking in May as the world s largest steelmaker intensifies production curbs to meet a target for lower volumes this year, and a sharp downturn in China's property sector hurts demand.
Iron ore sab makes it one of the worst-performing major commodities and a notable outlier in a broader boom that s seen aluminum soar to a 13 year high, gas prices jump and coal futures reach unprecedented levels.
A drop back to double-digits for the first time since July 2012 would be a relief for steel producers, but a blow to the world's top miners who have enjoyed bumper profits during the first half rally. It is bad news for key steel producing company Australia, where the key ingredient creates about 40% of exports of goods.
The iron ore futures were slashed over 20% this week and traded on $99.55 a ton at 9: 18 a.m. in New York.
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It s been a stark turnaround from the first half when steelmakers ramped up output and economic optimism and stimulus aided consumption. The rally then faltered after China began cracking down on surging commodity prices and the decline gathered pace as authorities began rolling out more measures to reduce steel production and end-user sectors like property weakened.
Iron ore s deepening sell-off has seen volatility increase to the highest level of volatility in five years with UBS Group AG saying the decline has played faster than expected. Inventories at port are 10% higher than a year earlier and expectations for global demand to soften further coincide with forecasts for Chinese supplies to rise. UBS predicts prices will average $89 next year, a 12% cut to its previous forecast.
It s a different story for steel, where prices have remained elevated. The market remains tight of supplies as China s production cuts significantly outpace declining demand, according to Citigroup Inc. Spot rebar is near the highest since May, although 12% below the month's high, and nationwide inventories have shrunk for eight weeks.
China has repeatedly urged steel mills to reduce output this year to curb carbon emissions. Measures are coming into effect, with production dropping to the lowest in September in 17 months and declining in early September. Volumes need to fall 8.7% year-on-year in the final four months to achieve flat annual output, according to China International Capital Corp.
Iron ore producers have seen shares plunge. The price drop is likely to weigh on profit that had surged along with the earlier jump.
The smaller producers will be able to weather lower prices as their production costs can be less than $20 a ton, but the bigger producers will be hit harder. Those operators tend to ramp production when the market rallies strongly and processes like having to transport ore from mines to ports make them more sensitive to price changes.
Australia s economy was sustained through the pandemic by rising iron ore export revenue. But the country s growth is under increasing pressure from locks on its two largest cities and every $10 decline in the price of iron ore has a fiscal impact of A $3 billion $2.2 billion to A $3.5 billion, according to Bloomberg Economics.
For China, iron ore slum has come as authorities grapple with stemming a rising raw material cost which had stoked fears that rising inflation would curtail growth.