Make Kitco Your Homepage

Iron ore sags on easing supply concerns, China downturn

Kitco News

By Enrico Dela Cruz

Jan 17 (Reuters) - Benchmark Dalian and Singapore iron ore futures fell on Monday, dragged down by improving near-term supply of the steelmaking ingredient and signs of continuing economic weakness in top steel producer China.

The drop came despite a surprise easing of monetary policy by the Chinese central bank and also weighed on other Dalian steelmaking inputs and steel futures in Shanghai. Iron ore's most-traded iron ore May contract on China's Dalian Commodity Exchange dropped as much as 3.1% to 700 yuan a tonne, its lowest since Jan. 10.

On the Singapore Exchange, iron ore's most-active February contract shed 2.8% to $123.10 a tonne, its weakest since Jan. 5. China's central bank cut the borrowing costs of its medium-term loans for the first time since April 2020, suggesting an intensifying economic slowdown, even as the world's second-biggest economy grew by a faster-than-expected 4% on annual terms in the last quarter of 2021. "The lagged economic data and PBOC rate cut were already priced in, in our opinion," said Atilla Widnell, managing director at Navigate Commodities in Singapore.

China's economic growth in the previous quarter, however, was its weakest pace in one-and-a-half years, and the weakness will likely continue this quarter amid ongoing COVID-19 restrictions, some analysts said. China's zero-tolerance policy for COVID-19 outbreaks and steel production curbs that are expected to continue until after next month's Winter Olympics in Beijing will likely keep demand for iron ore and other steel inputs depressed for some time. Iron ore was due for a correction following recent rallies, Widnell said, adding the improving weather in key supplier Brazil and increased shipments from Australia could release some air from "overinflated" prices.

Spot iron ore for delivery to China scaled a three-month peak of $132.50 a tonne on Jan. 13, before slightly easing to $130 on Friday, SteelHome consultancy data showed. Construction steel rebar and hot-rolled coil on the Shanghai Futures Exchange both lost 2.4% by midday break. Stainless steel slipped 0.1%. Dalian coking coal slumped 3.8% and coke tumbled 5.2%.

(Reporting by Enrico Dela Cruz in Manila; Editing by Aditya Soni)

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.