China is banning air pollution for next year’s Winter Olympics and imposing production restrictions on the steel industry. Coupled with the sudden decline in the housing market’s impact on demand, iron ore has recently been under heavy selling pressure, and futures prices fell below US$100 per ton on Friday (17th). This is the first time it has been seen in 14 months. It has collapsed by more than 20% this week. It is the biggest weekly decline since the financial tsunami in 2008. It is very different from other raw materials’ hot rise scenarios.
The iron ore futures prices traded in Singapore fell to a minimum of US$99.50 on Friday, hovering around US$100 for most of the time, and a total of 22% collapse this week. Starting from the historical high of more than US$230 per ton in May, it has fallen by more than 55% so far.
The Beijing authorities are severely restricting the production of the steel industry, and the boom in China’s housing market has dampened the market’s demand for this steel raw material. It also highlights that China, as the largest steel producer, has a decisive influence on the price of iron ore.
Ed Mier, an analyst at ED&F Man Capital Markets, said that the sharp drop in iron ore prices was mainly due to the market expectation that China will strictly implement production restrictions this year.
The iron ore market fell to the cloud, which also made the miners who were earning a lot of money in the first half of the year sad. Major miners including BHP, Rio Tinto, and Vale plunged.
Iron ore is now at the bottom of the ranking of major commodities. Most of the other raw materials have risen as the economy restarts. The price of aluminum has recently soared to a 13-year high, the price of natural gas is soaring, and coal futures are also at unprecedented high prices.
The prospect is under pressure
UBS (UBS) estimates that the price of iron ore will fall, and the average price for next year will be US$89, which is 12% lower than the previous estimate.
UBS said that the heavy selling pressure has caused the volatility of iron ore prices to soar to the highest in five years. The current port’s iron ore inventory is 10% higher than a year ago.It is expected that Chinese demand will further slow down, while global supply continues to increase。
The effectiveness of China’s production restriction measures is emerging. Steel production fell to a 17-month low in August and continued to decrease in early September.
China International Capital Corporation (CICC) estimates that in order to meet the full-year production target set by the Beijing authorities, steel production in the remaining four months of this year must be reduced by 8.7% compared with the same period last year in order to meet the target.
However, China’s production restriction policy has driven the price of steel soaring, and the spot price of steel rebar is approaching the highest price since May-although it is still 12% lower than the historical high price set in that month. Citigroup said that China’s production cuts are far outpacing the pace of declining demand.
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