Iron Ore Slides Due to Reduced Steel Production and Property Market Concerns

The Impact of China's Steel Production and Property Crisis on Iron Ore

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Iron ore prices experienced a retreat on Wednesday, facing challenges stemming from lower-than-expected steel production and an ongoing property crisis, which raised concerns about demand in the world's largest consumer market. However, earlier in the trading session, an improvement in Chinese economic indicators provided some support.

The most actively traded January iron ore contract on China's Dalian Commodity Exchange (DCE) closed daytime trading with a slight decline of 0.4%, settling at 861 yuan ($117.76) per metric ton. This modest decrease erased gains that had been recorded earlier in the session.

Similarly, the benchmark November iron ore contract on the Singapore Exchange fell by 1.4% to $115.85 per ton as of 0718 GMT, marking its lowest point since Monday.

Official data revealed that China's crude steel output in September had dropped by 5% compared to August and had fallen by 5.6% year-on-year. This decline was attributed to more steel manufacturers scaling back production due to elevated raw material costs and sluggish demand in the world's leading steel-producing nation.

In addition to these challenges, China's property sales and investment experienced significant declines, even as efforts to support major cities struggled to instill confidence in an industry grappling with a prolonged crisis. However, it's worth noting that the pace of contraction in this sector did show signs of slowing down.

Cheng Peng, an analyst based in Beijing at Sinosteel Futures, emphasized, "The key factor remains the performance of the steel market, as it significantly impacts the demand for upstream raw materials. While low inventory levels and a substantial price differential between spot and futures prices have provided some support to iron ore, the data indicates a degree of pessimism in the steel market."

The dip in iron ore prices came after an initial boost from improved economic data. China's third-quarter gross domestic product (GDP) displayed growth of 4.9% compared to the previous year, according to data from the National Bureau of Statistics (NBS). This figure surpassed expectations in a Reuters poll, which had predicted a 4.4% increase in the world's second-largest economy.

Additional components used in steel production also experienced declines, with coking coal on the DCE down by 3.02% and coke down by 3.87%. Steel benchmarks on the Shanghai Futures Exchange also posted losses, with rebar shedding 1.01%, hot-rolled coil declining by 0.74%, wire rod falling by 1.65%, and stainless steel dropping by 0.44%.

Source: Reuters (Reporting by Amy Lv and Dominique Patton)