Spot iron ore prices fell to the lowest since late December as slower steel demand in top market China sapped buying interest for the raw material.
Iron ore has lost more than 9 percent since hitting a 16-month high in mid-February after Chinese steel mills eased up on restocking given rising inventories of steel products that pointed to weak end-user demand.
Slower Chinese appetite since last year is prompting top iron ore miners to curb costs to boost their profits as prices fall. Rio Tinto has cut staff at its multi-billion Simandou iron ore project in Guinea by 90 percent, essentially freezing its investment, according to government sources in the West African country.
Benchmark 62-percent grade iron ore for immediate delivery to China fell 1.5 percent to $144.10 a tonne on Monday, the lowest since Dec. 28, based on data from price provider Steel Index.
Before hitting its weakest this year, iron ore peaked at $158.90 on Feb. 20, its loftiest since October 2011.
“Steel demand is a bit slow. We’re only seeing a pickup in demand for certain types of steel products like plates for the auto sector. But for long products (used in construction), it’s still not encouraging,” said an iron ore trader in Shanghai.
“If growth in steel demand will remain slow, this will create a serious surplus in two to three months’ time,” he said.
China’s inventory of steel products hit a record 21.75 million tonnes as of March 1, according to estimates by analyst Helen Lau at UOB-Kay Hian in Hong Kong. Long steel products accounted for more than half at 13.5 million tonnes, she said.
“Although the inventory surge was due mainly to restocking ahead of holidays in anticipation of peak season demand from March … the market has been worrying if demand will be able to rebound,” Lau said in a note.
Jiangsu Shagang Group, China’s largest privately-owned steelmaker and the biggest producer of construction-used rebar, cut prices of its long products by 100-250 yuan ($16-$40) per tonne, according to Steel Index, as steelmakers respond to the weak demand.
The most traded rebar contract for October delivery on the Shanghai Futures Exchange was off 8 yuan at 3,900 yuan a tonne by 0235 GMT, after hitting a three-month low of 3,867 yuan on Monday.
Slower demand could push some Chinese steel mills to curb output which may hit demand for iron ore. In February, China’s crude steel production was up nearly 10 percent from a year ago at 61.83 million tonnes.
Miner Rio Tinto sold a cargo of 61-percent grade Australian Pilbara iron ore fines at $145.85 a tonne at a tender on Monday, more than a dollar down from last week, traders said.
Shanghai rebar futures and iron ore indexes at 0238 GMT
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.2181 Chinese yuan)
(Editing by Tom Hogue)