DCE iron ore price plunges 7% on bearish demand outlook

The most-traded iron ore futures contract on the Dalian Commodity Exchange for January 2022 delivery plunged by 6.7% or Yuan 51.1/dmt ($8/dmt) on Monday from last Friday's settlement prices to close the daytime session at Yuan 723/dmt, a more than one-year low, DCE data shows. Exchange watchers blamed intensified market worries about the likelihood of domestic steelmakers needing to cut steel production more steeply in coming months, resulting in the further shrinking of iron ore demand.

"We know for certain that steel production controls will be the main theme for the iron ore market for the remainder of this year, and any news or rumours about larger steel production declines will drag ore prices down further," a Fujian-based iron ore trader in Southeast China commented.

"For example, market chatter today suggested that steel mills in (East China's) Jiangsu may have to further cut back their steel production soon. If this happens, there will be less demand for iron ore," he observed.

Jiangsu province is China's second largest steel production hub, with its crude steel output over January-July reaching 73.77 million tonnes, up 9.6% on year, and accounting for 11.4% of the nation's total steel output, according to National Bureau of Statistics data.

In fact, steelmakers nationwide have already slashed their production in response to Beijing's call for lower total steel output in 2021 from last year, as reported.

The trader also expected that during coming months, various reasons will be given for the need for further curbs on steel production, "such as winter pollution controls on industrial activities (normally over November-March)," he said.

In strong contrast to the large fall in iron ore futures on Monday, steel futures prices on the Shanghai Futures Exchange (SHFE) climbed further, bolstered by market expectations for reduced steel supplies in the future amid the deeper production cuts, Mysteel Global observed.

China's most-traded rebar contract on the SHFE for January 2022 delivery, for example, rose another Yuan 92/tonne or 1.7% from Friday's settlement price to close the daytime session at Yuan 5,473/t on September 6.

Written by Victoria Zou, zyongjia@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.