Iron ore plunges closer to $80/mt CFR, last seen in February

On Wednesday, August 21, prices of Australian iron ore fines with 62 percent Fe content have plunged by $5.5/mt compared to the previous day, slumping to $82.75/mt CFR. The last time such a low level was seen in the market was in late February this year. Prices for Brazilian 65 percent Fe content fine have dropped by $4.5/mt to $92/mt CFR on Wednesday.

Fresh steel production restrictions announced in Wu'an city, a major steel hub located in the province of Hebei in China, have put strong pressure on the market as demand for iron ore will be directly impacted. According to the restrictions, nine out of 14 steel mills working in Wuhan will have to sharply cut blast furnace and sintering machine operations. Four producers will fully stop sintering production. The new measures will be effective on August 22-31.

Moreover, the supply-demand imbalance will continue in the long term, major market participants agree, and so iron ore prices will fluctuate at lower levels compared to the peak seen in the first half of this year. “We expect supply conditions will return to a more normal path on a one to three-year timeframe, and prices are likely to be volatile as that adjustment plays out,” BHP Billiton said in its financial report.

Iron ore futures prices have posted record low levels as well. Iron ore at Dalian Commodity Exchange lost 3.6 percent over the day, coming to RMB 593.5/mt, while futures at the Singapore Exchange touched $80.25/mt, slumping by more than $6/mt from the previous day. Steel prices are also on a downward trend in both the physical and future markets, but the price decline has been much slower.

Deals for iron ore in the overseas market on August 21