Iron ore price enters freefall

After a 4% slide in the iron ore price on Tuesday, another selloff on Wednesday brought losses for the week to over 7% as negative sentiment swamps the market for the steelmaking raw material.

The CFR 62% Fe 2% Al benchmark import price at the port of Qingdao tracked by The SteelIndex dropped 2.7% on to $71.20 a tonne on Tuesday, down $5.50 in just two sessions.

Prices at the port of Tianjin dropped nearly 3%, staying just above $70 a tonne. The price of iron ore is now down 47% in 2014.

The steelmaking raw material last traded at these levels in June 2009 when annual benchmark pricing between the Big 3 producers – Vale, BHP Billiton and Rio Tinto – and Chinese and Japanese mills were still the industry norm.

Today's gap down has been blamed on the latest Chinese property market data showing price declines extending for a sixth month in a row and a fall in the domestic steel price to record lows of $400 a tonne.

China is responsible for more than two-thirds of the world's iron ore consumption and forges almost as much steel as the rest of the world combined, but steel consumption is set to drop this year for the first time since at least 2000.

On Monday China's largest private steel mill declared bankruptcy while debt-laden Sinosteel, one of the biggest importers of iron ore in the country, are said to be kept afloat only because it is one of only 113 elite state-owned firms centrally managed by Beijing.

While demand is slowing, the major factor pushing down prices has been a flood of new supply, with even the risk of a strike at the world busiest ore export terminal, Port Hedland in Australia, not bringing any support to the price.

Reuters quotes a Commonwealth Bank of Australia research note that neatly sums up the Chinese credit and supply situation:

"We no longer expect a meaningful iron ore restock later in the year as steel mills in China are content to purchase iron ore at their convenience, either from the port or from domestic producers, due to its wide availability. Tighter credit is also forcing many steel mills to adjust to lower inventory levels."