Iron ore price sinks as Beijing cracks down on smog

Iron ore price sinks as Beijing cracks down on smogAfter staging a comeback of sorts following a drop to a more than 5-year low of $77.50 a tonne at the end of September, the iron ore price is again under pressure.

Northern China 62% Fe imports tracked by The SteelIndex exchanged hands for $78.80 a tonne on Tuesday, down 1% on the day.

After an uneventful second half of 2013 when the price was stuck between $130 and $140 a tonne for 148 days straight, the industry was jolted on March 10, when iron ore suffered the worst one-day decline since the 2008-2009 financial crisis, cratering 8.3% in a single session.

The recovery from there was swift, but by mid-June ore was sliding again and quickly became a one way bet as the market fretted about a flood of new supply just as demand in top consumer China slowed.

Platts spoke to a source at a Chinese state-owned trading house, who summed up the lacklustre trading conditions in the steelmaking raw material this way:

"I personally think it's hard for the market to lift. We have to look at the fact that there isn't much upside by way of steel performance or the Chinese economy to support a boost in ore prices. There's only news of tight credit for mills and also an oversupply in iron ore, so how does the ore market truly recover? There's also no actual news of economic stimuli that will extend directly to the steel and iron ore markets."

The price is also being influenced negatively by short term factors as Beijing gears up to host the Asia-Pacific Economic Cooperation summit.

The Chinese capital and environs are imposing the most stringent pollution controls since the 2008 Summer Olympics to curb smog during the meeting of Asian leaders.

Reuters quotes Commonwealth Bank of Australia analyst Lachlan Shaw as saying modest steel production cuts should be expected for 2-3 weeks which "should reduce iron ore demand in the immediate term and likely mute the expected seasonal restocking into China's winter."

Image by Xiaojun Deng