Iron ore is sinking under the weight of unrelenting supplies from the biggest producers such as Vale, Rio Tinto, BHP Billiton and Fortescue, even as Chinese buyers are buying smaller lots of the steel-making material amidst a slowdown in the steel manufacturing industry in the country.
The benchmark 62% Fe import price (freight and insurance included) for iron ore delivered at the Chinese port of Tianjin declined 1.8% to US$43.40 a tonne Tuesday, the lowest on record since The Steel Index started maintaining records of spot prices in November 2008.
Last month, Zhu Jimin, the deputy head of the China Iron & Steel Association, warned that domestic steel demand was falling sharply following the slowdown in the Chinese property market.
Chinese steel mills appear to be facing a perfect storm of waning demand, cratering prices and mounting losses – all this while banks have begun to tighten the screws on lending to the industry.
“Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” Zhu said. “Although China has cut interest rates many times recently, steel mills said their funding costs have actually gone up.”
Iron ore prices hit a high of US$190 a tonne in February 2011.
The decline in iron ore, as well as other mined commodities, has taken a severe toll on the share prices of the major miners.
But there could be more pain ahead due to the impending commissioning within the next 12 months of fresh iron ore capacity at the Roy Hill and S11D projects in Australia and Brazil, respectively.
Photo credit: Rio Tinto (Pilbara)