[ferro-alloys.com] The slump in the iron ore price might have some investors with their fingers on the panicked sell button, but Deutsche Bank is saying this drop is no doomsday scenario. 

The bulk commodity's spot price hit a 12-month low on Wednesday and futures also fell amid growing concern that a slowing Chinese property market may dent steel demand.

Australia's largest export has dropped 40 per cent from its peak in February. Weighing on the price are recent Chinese steel export figures, which show a 30 per cent year-on-year fall in May, continuing the downward trend that began in August. 

The United States, India and the European Union have instigated protective trade measures in a bid to prop up their own steel industries, and as such have dampened Chinese exports. 

Compounding the global protectionist attitude surrounding trade is the tightening of credit conditions in China over the past quarter and the threat of significant oversupply. 

While both Australian and Brazilian producers had a muted start to 2017, thanks to lousy weather, experts expect a net 35 million tonne increase in Australian output – including from the newly producing Roy Hill – and a net rise of 20 million tonnes out of Brazil. 

Another consideration playing on the minds of investors is China's decision to shut as much as 150 million tonnes of annual crude steel capacity, much of which was trading illegally and ignored in the official demand count. 

While that paints a pretty gloomy picture for the iron ore price over the near term, Deutsche points to a solid pipeline of Chinese infrastructure projects to uphold steel demand. 

"Although it is difficult to paint an outright bullish picture for Chinese steel demand, we do not see an outright collapse," said Grant Sporre, research analyst at Deutsche Bank. 

"Even if order books for the state-owned constructors decline in 2018, the lag between order book and project spend should ensure that Chinese steel demand remains reasonably firm."

The research team points to a positive shift for industrial profitability and an expectation of modest capex growth in 2017. 

While a stalling property market in China is likely to keep steel demand growth muted, a recent trip has the team believing there will not be an outright decline in steel demand. 

• [Editor:Wang Linyan]