China’s accelerating efforts to cut steel production, combined with signs of a pick-up in global iron ore supply, have dragged the spot price of Australia’s number one export to its lowest level in seven months.
The iron ore price dived 8.5 per cent to $US132.38 per tonne, according to Fastmarkets MB, as the Chinese city of Handan became the latest region to implement restrictions on steel output as part of the country’s widespread environmental crackdown to reduce carbon emissions.
The rules will require the closure of some furnaces and will last until the end of October, which is expected to lower the city’s steel-making capacity by nearly 10 per cent.
“The market is being driven by these continual headlines around steel mill closures,” said senior commodity strategist at ANZ, Daniel Hynes. “It has become very sensitive to these sorts of announcements, and it’s now a case of death by a thousand cuts where those Handan restrictions add to a long list of other closures we’ve seen in various provinces around China.”
Iron ore’s latest plunge adds to the volatility of the past three months, where its price has fallen by more than 5 per cent in a single session on six occasions, according to Platts. Monday’s fall extends iron ore’s decline to 44.6 per cent from the record high of $US237.57 per tonne it reached in May.