Prices for iron ore, a key ingredient in steelmaking, fell below $50 for the first time since July as steel demand further weakens in China.
Benchmark prices for immediate delivery to China fell to $49.50 a tonne, according to Steel Index data, with iron ore now down 63 per cent from the beginning of last year when it traded at $135 a tonne.
China’s steel production, long the engine of global iron ore demand, is peaking. Between January and September this year steel production declined by 2 per cent, according to official figures.
That has left the country’s steel mills facing losses and with problems paying their debts, as steel prices have fallen further than those of their raw material inputs such as iron ore. China produces about half of the world’s steel.
Sinosteel, a central-government-controlled enterprise that imports iron ore, missed interest payments this month on its bond due in 2017.
The intensity of China’s steel consumption is clearly dropping as economic growth slows, Zhu Jimin, deputy head of the China Iron & Steel Association, said at a briefing in Beijing on Wednesday, according to a notice on its website.
Apparent steel demand in the country dropped 8.65 per cent, according to the association’s data.
“There are only two ways of solving the oversupply in the market: increasing demand or reducing supply,” Mr Zhu said. “In the current economic environment, there is no hope to increase demand, you can only start with supply reduction to first resolve the problem.”
After averaging 60m tonnes a year growth from 2000, the global seaborne iron ore trade is set to be flat this year, according to Australian investment bank Macquarie.
But at the same time, supply from the large mining companies shows no signs of slowing. This month, miner BHP Billiton reported its production of iron ore is at record levels.
In Australia, the Roy Hill mine run by billionaire Gina Rinehart is also set to start producing iron ore this year.
Drop in steel production in China between January and September
As prices have fallen, China is buying more iron ore from Australia rather than smaller suppliers, according to Macquarie.
Producers from countries such as Swaziland, Honduras, Mexico and the US have effectively disappeared from the Chinese market, they said.
Slowing demand from China also weighed on other commodities. Aluminium prices fell to a six-year low of $1,463.15 a tonne, while copper dropped 0.1 per cent to $5,214 a tonne.
Oil rose, with US benchmark West Texas Intermediate rallying 6 per cent to more than $45 a barrel ahead of the return of refineries from seasonal maintenance. WTI had fallen to a two-month low of $42.58 a barrel on Tuesday.