Iron ore price starts Chinese new year on back foot

The price of iron ore declined to a more than 6-month low on Thursday, as the slump in Chinese steel prices continue.

The benchmark CFR import price of 62% iron ore fines at China's Tianjin port will enter the year of the horse at $122.60 a tonne, a level last seen July 8.

The steelmaking raw material is down 8.6% since the start of the year according to data supplied by The Steel Index (TSI).

The price of iron ore has been under pressure from falling steel prices in China where Shanghai rebar futures – the world's most active steel contract – are down 3.6% in January, recording a loss in four of the last five months.

After a 10% jump to a record 820 million tonnes last year, China now consumes almost three-quarters of the global seaborne iron ore trade which for 2013 is estimated at just over 1.1 billion tonnes.

The country manufactures 48% of the world's steel, but a slowdown in Chinese steel production this year appears inevitable amid overproduction, a crackdown by authorities on the industry over environmental concerns and weaker domestic demand.

Chinese iron ore stockpiles have climbed to 92.6 million tonnes, a 14-month high according to Steelhome, a data provider.

Part of the reason for high inventories, is that high quality ore from Australia, Brazil and South Africa is edging out domestic Chinese supply, which typically have very low iron content, as steelmakers cut down on cost and pollution.

Fortescue Metals Group (ASX:FMG), world number four iron ore miner after Brazil's Vale (NYSE:VALE) and Anglo-Australian giants Rio Tinto (LON:RIO) and BHP Billiton (LON:BHP), on Thursday missed output targets, but said the substitution trend will continue and keep prices in the $110 – $30 a tonne range.

The other crucial ingredient in the steelmaking process, coking coal is also under pressure.

TSI's prices for premium hard coking coal (FOB Australian east coast exports) after hitting a high of $172 a tonne in February 2013 dipped as low as $127.20 a tonne this week, before recovering to $129.50 on Thursday.