The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange ended daytime trading 0.7% lower at 1,165 yuan ($180.50) a tonne, down 14.2% from a record high scaled on May 12.
Dalian iron ore, however, was set to close out the quarter with a gain of about 20%, helped by its record-setting rally in May.
Robust raw material demand in China, the world’s top steel producer, had propelled iron ore prices to record highs in a rally also spurred by what Chinese authorities had described as excessive market speculation.
Costly raw materials combined with softening demand for steel products in China are now weighing on steel producers’ profitability, analysts said.
“Steel prices have dropped sharply from May record highs,” said Robert Rennie, head of financial market strategy at Westpac. “With coking coal at two-year highs and iron ore close to record, steel mill profitability has collapsed.”
On the Singapore Exchange, iron ore’s most-active August contract, however, held firm at $201.90 a tonne by 0704 GMT.
The spot price of benchmark 62%-grade material was $215 a tonne on Tuesday, according to SteelHome consultancy data.
“When we scale (China) iron ore inventory to slightly softer steel production or imports, the iron ore price looks increasingly out of line,” Rennie said.
“If these trends of weaker steel production continue through the summer, then that argument becomes even more compelling.”
