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PrintSteel futures in Shanghai sank to an all-time low on Tuesday, piling pressure on a global iron ore market reeling from a slump in demand from China, the world's dominant consumer.
Losing more than a third of its value since early July, iron ore prices are near their lowest level in three years, forcing Australian miner Fortescue Metal Group to slash capital spending and cut hundreds of jobs.
The most-traded rebar for January delivery on the Shanghai Futures Exchange hit a session low of 3,276 yuan ($520), its weakest since the bourse launched rebar futures in 2009. It closed down 2.1 percent at 3,282 yuan.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI dipped 30 cents to $89.10 a tonne on Monday, after Friday's bounce, according to data provider Steel Index.
Iron ore fell to $88.70 on Thursday, its lowest since October 2009.
"Some people thought iron ore prices had hit the bottom, but I think Friday's rebound was temporary and prices may drop further unless we see big policies to support the economy," an iron ore trader based in eastern China's Shandong province said.
The precipitous decline in Chinese steel prices has had a chilling impact on the iron ore market, with iron ore prices falling about 24 percent in August.
The volume of iron ore swaps and options cleared globally hit a record high of nearly 18 million tonnes in August, the Steel Index said, as sliding prices lifted demand for the hedging tools.
SEVERE OVERCAPACITY
There is still no immediate sign that steel prices will improve, though traders said there was a limit to how much iron ore could decline further.
"The slump in iron ore prices will slow down as they have almost fallen to the total cost level of most foreign miners, while there is no positive news for the steel market and I can only expect steel prices to stabilise a bit in September and October," a Shanghai-based steel trader said.
The rout is being felt throughout the iron ore sector, and the larger players are now having to rethink their once bullish expansion plans.
Fortescue Metals, the world's No. 4 iron ore producer, said it would cut jobs, slash its capital spending by a quarter and delay its expansion plans as a result of slowing Chinese demand.
The move follows a decision last month by mining giant BHP Billiton to shelve a $20 billion copper and gold mine expansion in Australia and put all other approvals worldwide on hold.
There are few signs as yet of any policy support from China, and a senior official with the country's steel association said that more government stimulus was unlikely to solve the industry's long-term problems.
Wu Xichun, the honorary chairman of the China Iron and Steel Association, told a weekend conference that the "disastrous" slump in prices this year was partly a result of the country's 4 trillion yuan fiscal stimulus package of 2009, which worsened longstanding steel overcapacity problems and pushed iron ore prices up to irrational and unsustainable levels.
"Severe overcapacity and excessively high iron ore prices are the fundamental reasons why the steel sector is in its current predicament," he said.(Source: Reuters)
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