Having fluctuated and decreased by 1.35 percent last week, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port have moved down by $0.2/mt as of today, Monday, September 3, as compared to the closing price at the end of last week, starting the current week at $65.3-66.4/mt CFR China. Additionally, as of August 27, inventory of iron ore at 33 major Chinese ports amounted to 126.71 million mt, down 1.78 percent compared to the inventory levels recorded on August 20, as announced by China's Xinhua News Agency.
One of the reasons for the downward movement of global iron ore prices has been the softening of steel prices in the Chinese domestic market. Secondly, the impact on prices of the decision to impose new production cuts at Chinese steel mills during the winter season has been fully digested in past weeks and the positive sentiment it created in the futures market has vanished. Meanwhile, demand for high quality iron ore from Chinese steel mills has continued to provide support for high quality iron ore prices, which have declined less than prices of low quality iron ore in the given period.
Meanwhile, as announced by the China Steel Logistics Committee on Friday, August 31, the purchasing managers index for the Chinese steel sector was at 53.4 percent in August this year, decreasing as compared to July. In addition, in August the production index for the steel sector decreased to 50.0 percent as compared to the previous month.
Following these developments, the Caixin/Markit Purchasing Manager's Index for China's manufacturing sector came in at 50.6 for August, the lowest rate of the past 14 months. In addition, China’s export sales fell for the fifth straight month, according to Caixin/Markit. Accordingly, the indications are that the trade war between the US and China has started to damage the Chinese economy. As the negative sentiment in the Chinese economy seems to be continuing and as trading activity in the country is likely to slow down in the coming period, demand in the local Chinese steel market is expected to decrease in the coming period. Consequently, demand for iron ore in China is expected to weaken and exert downward pressure on iron ore prices.