Iron Ore Selloff Accelerates as China Seeks to Cut Steel Output

(Bloomberg) -- Iron ore’s rout accelerated as China pushes forward with a pledge to curb steel production.

Futures in Singapore tumbled 10% and are trading at the lowest in eight months on expectations that Chinese steel output and consumption will weaken over the rest of the year. Prices are now down more than 40% from the record reached in mid-May.

China has repeatedly urged steel mills all year to reduce output to cut back on pollution, with a drop in July’s production signaling that measures are starting to take effect. Some major producers have already made arrangements to reduce supply, while miner BHP Group said this week that the increasing likelihood of stern cuts this half is “testing the bullish resolve of the futures markets”. 

Iron ore’s slump has spilled over to steel, with prices falling on expectations Chinese demand will wane. The country’s moves to rein in the property market and curb surging prices saw home-prices grow at the slowest pace in six months. 

“Steel prices globally have started to cool as we expected, and we hold on to our view that there will be further easing of prices for the remainder of 2021 and into 2022 as Chinese demand from the construction industry weakens,” Fitch Solutions wrote in a note. 

Iron ore in Singapore sank 10% to $134 a ton by 3:23 p.m. local time. Futures in Dalian closed 6.2% lower. Rebar dropped 2.5% and hot-rolled coil declined 1.7% in Shanghai.

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