“China’s moves to rein in its mammoth steel industry have roiled [iron ore] markets this year,” say Krystal Chia and Yuliya Fedorinova on Bloomberg. Global iron-ore prices hit a record high in May; contracts for spot (immediate) delivery to north China soared to over $235 a tonne. Since then, they have slumped by around 60%, falling below $100 a tonne for the first time in a year.
The turmoil in the real-estate sector has played a minor role in the latest slump. However, the underlying cause of both boom and bust is the Chinese government’s attempts to curb steel production in order to reduce power consumption, cut carbon emissions and – most pressingly – improve air quality ahead of the Winter Olympics next year. Hence the industry saw iron-ore prices “spiking in the first half as [steel] mills rushed to front-load volumes ahead of additional production restrictions being rolled out”, followed by the recent rout as demand dried up.
Just the surge in May was “an overblown rally”, the plunge was “a disorderly retreat”, says Clyde Russell on Reuters. Neither was “fully justified by the fundamentals of supply and demand”. Changes in physical shipments of iron ore are “nowhere near as dramatic as the moves in prices”. China’s iron-ore imports in the first eight months of the year were down just 1.7% from the same period in 2020; imports in August were the highest since April, with no sign that inventories at ports are building.
