The iron ore price plunged on Monday on fears that the fast-spreading omicron strain of the covid-19 virus has taken hold in Beijing, and that ever more areas of the country are threatened by the severe restrictions that have paralyzed the financial hub of Shanghai.
According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $136.48 a tonne during morning trading, down 8.97% compared to Friday’s closing.
The most-traded iron ore on China’s Dalian Commodity Exchange for September delivery tumbled 10.7% to 795 yuan ($121.36) a tonne, the lowest closing price since March 23.
The contract tracked spot 62% iron ore prices that fell $8 to $143 per tonne on Friday, according to SteelHome consultancy.
“The plunge was driven by the domestic covid-19 situation, as market expectations on demand failed, while raw material prices lost support on state planner’s output controls,” SinoSteel Futures analyst Cheng Peng said.
The iron ore market is likely reading more yuan weakness, which increases import costs, said Stephen Innes, managing partner at SPI Asset Management, adding that iron ore is catching a downdraft from other commodities as well.
Li Gao, a director at the environment ministry, told a conference in Beijing on Saturday that China needs to put reasonable controls on steel output. In practice, that means cutting production for a second year, as per the pledge from the government last week.
Factor in the move to less-polluting methods of producing the alloy and that could mean that iron ore consumption has peaked.
Weak demand from the construction sector has already led to a pile-up in steel inventory during what should be one of the year’s main periods of activity.
Capital Economics said in a note on Friday that it expects infrastructure stimulus to “merely provide a floor under prices as the government appears willing to tolerate slower growth in 2022.”
The China Iron and Steel Association said on Monday the country’s first-quarter apparent steel consumption plunged 9.5% year-on-year, but demand is seen to recover in the second half of the year.
(With files from Bloomberg and Reuters)