Industrial metals: Iron ore prices continue to fall

In recent days, the price of iron ore on the SGX in Singapore has fallen below the USD 90 per ton mark for the first time in 1½ years. Today, the most heavily traded futures contract fell again sharply by almost 7% at times. At times it was trading below USD 85. The iron ore price has thus lost around 35% from its interim high in mid-October. Since the start of the correction in mid-July, the price has now slumped by 60%. The movements on the DCE in Dalian, China, are similar. There, the ton of iron ore currently costs the equivalent of USD 82. As we explained last week, we believe that the decline in the iron ore price is related to the curtailment of Chinese steel production (see Daily Info Commodities of November 3).

Next Monday, the National Bureau of Statistics (NBS) will release new steel production data for October. According to data from the China Iron and Steel Producers Association and research provider Mysteel, China also produced less steel in October. The NBS is likely to confirm this. Since China is by far the world's largest steel producer, accounting for more than 50% of the total, the decline in production there is having a negative impact on iron ore demand. In addition, the ongoing turmoil in China's real estate sector is likely to play a role in slowing construction activity. Incidentally, the fact that China is demanding less iron ore is also reflected in freight rates: The Baltic Dry Index, which tracks freight rates for bulk shipments, has since halved from its 13-year high in early October. Although it is currently at a 5-month low of around 2,800 points, this is still more than double the average of the past ten years.

Source: Commerzbank Research, Photo: Fotolia