As China’s steel sector struggles with ongoing challenges, iron ore prices are at their lowest since 2022. They trade near $90 a tonne.
The China Iron & Steel Association has warned steel mills not to increase production too rapidly, for fear that a premature boost in output could stifle a potential recovery of the steel market after summer.
Steelmaking material has experienced a dramatic decline this year, with a drop of more than a quarter.
Steel mills in China have suffered substantial losses due to the low steel consumption, which has created a difficult environment for iron ore price.
Steel demand usually increases after summer. However, this year is a test for steel producers.
CISA warns of overproduction
CISA stated in a report following a meeting in southern China with steel producers that “there will be a certain amount of recovery in the steel demand throughout September and October which is favorable for the market”.
The association warned that if production is restarted too soon, it could only result in temporary improvements and not a lasting recovery.
China’s steel sector is in a long-term crisis, which has been largely triggered by the country’s slumping property market.
Steel demand has been significantly reduced, resulting in fierce competition between producers and an excess of steel.
Goldman Sachs said in a note earlier this week that the iron ore market will be “challenging” for the near future.
Futures on iron ore hit new lows
Iron ore futures prices in Singapore fell by up to 2% and reached $90.70 per tonne. This is the lowest price for iron ore since November 2022.
Prices had fallen 10% in the last week by 11:51 am local time.
Analysts think that the price of gold may be supported below $100 per ton, since this is where high-cost miners struggle to make a profit.
Despite these forecasts, iron ore inventories in China’s port remain abnormally high at more than 150 million tonnes.
The stockpile has increased as the steel industry reduced production in July and August.
CISA’s recent comments, which echo earlier warnings for the industry, were made during a meeting of steel producers from the southern provinces Guangdong, and Guangxi. These regions are particularly affected by low steel margins and prices.
In a Bloomberg report, Zhao Liang, the head of research for GF Futures Co. said that mills were losing money and iron ore stocks are increasing at ports.
The fundamental picture is in support of the price decline. It’s because of weak steel demand – people are pessimistic.”
The outlook for steel and iron ore in China remains uncertain as the steelmakers of China navigate through these turbulent times.
The industry could continue to be challenged in the months ahead if demand does not improve significantly.
As new information becomes available, this post Iron ore falls as China’s Steelmakers warn against a short-lived Recovery may be updated.
