Iron ore prices hit a 2½-month low Monday as Chinese steelmakers resist restocking frightened by weakening economic data.
Data provided by The Steel Index, a price-reporting agency, shows spot prices for the benchmark 62% of the steelmaking commodity dropped to $144.10 a tonne yesterday, the lowest this year. It means that, so far, iron ore is down 9.3% since mid-February.
And the industry is quickly reacting to the bad news.
Global miner Rio Tinto (LON:RIO) has decided to lose pace at its multi-billion investment in Guinea’s untapped Simandou iron ore deposit and is said to be ready to fire 90% of its workers, reports The Sidney Morning Herald.
Earlier this month, the world’s second-biggest iron ore producer appointed investment banks Credit Suisse and CIBC to lead the sale of most of it shares in the Iron Ore Company of Canada (IOC).
U.S. based Cliffs Natural Resources (NYSE:CLF) announced Tuesday it will shut down work on its Canadian pellet plant in Quebec by the end of May.
The Cleveland-based miner, which halted its expansion plans for the Bloom Lake project in Quebec last year, expects to keep its Wabush Mines operation in western Labrador.
Despite the price drop, iron ore remains high when compared to levels reached in the second half of 2012, when the commodity fell as low as $86.70 (click on the graph to enlarge).
Iron ore is key for the profitability of the world’s largest miners, such as BHP Billiton, Fortescue Metals Group, Vale and Rio Tinto, as well as steelmakers including ArcelorMittal and Baosteel.
The commodity is, in fact, expected to account for more than half BHP’s earnings this year and over 75% of Rio’s profits.
Relations between China and the iron ore miners have been strained for a long time as the market fundamentals have shifted in favour of producers. Last week, Beijing’s National Development and Reform Commission accused mining firms and traders of manipulating iron ore prices higher. According to analysts quoted by Financial Times (subs. required), that was a clear sign that the country’s steel industry is failing to make enough money.
FT’s sources said the low level of stocks would force Chinese steelmakers to return to the market soon. Iron ore stocks at Chinese ports dropped 3.8% to 66.3 million metric tons at the end of last week, the lowest in four years, according to Beijing Antaike Information Development Co, a State-backed research firm.
However, Chinese authorities —through the State-own newspaper— said Tuesday that iron ore needs to fall as much as 20% to push Chinese importers to replenish port inventories and increase demand for ships to deliver additional cargo.