Iron ore futures in China dropped 3% on Tuesday, while US iron ore continued its slow and steady decline as traders began to price in the effect of China’s low demand period.

Iron ore prices have fallen since spring, when increased seasonal demand boosted the commodity, while speculative investors accelerated the rally, but now curbed speculative investments due to new exchange rules and the start of the seasonal lull for iron demand is impacting prices. In China, construction activity typically weakens starting in June. This low demand period lasts through the summer due to hot weather. The decrease in construction will impact steel use and therefore iron ore demand.

Meanwhile, China is apparently working to curb excess steel production, to decrease overcapacity and to decrease air pollution. The Tangshan government’s orders to steel mills to cut their production to ease air pollution could lower steel production by 1 million metric tons. For reference, in May China outputted 70.5 million metric tons of steel.

The average iron ore price for 2015 was around $50 a metric ton. In 2016, so far, iron ore has also averaged about $50 per metric ton, but prices peaked above $60 per ton amid the seasonal restocking in China, and now prices are trading just above $51 per ton. Citigroup expects iron ore will average $45 a ton in 2016, and $39 in 2017. The World Bank is more bullish on iron ore, it expects the commodity will trade at $50 a metric ton this year, $51.50 in 2017 and $56.20 by 2020.

• [Editor:tianyawei]