Iron ore touches six-week low on China demand worries

Iron ore prices extended losses on Thursday to hit their lowest levels in more than six weeks, weighed down by rising concerns about demand in top consumer China as steel margins shrink and steel consumption weakens amid high input costs.

The most-traded iron ore contract on China’s Dalian Commodity Exchange (DCE) fell 0.96% to 774.5 yuan ($114.32) a metric ton by 0327 GMT, hitting its weakest level since April 20.

The benchmark July iron ore on the Singapore Exchange was down 0.93% at $102.7 a ton, as of 0317 GMT, after hitting the lowest since April 14 at $102.5.

Demand for iron ore will likely shrink as risks of steel production cuts rise with high coal prices squeezing margins, said analysts.

“Steel demand has somewhat begun to feel the bite of higher inflation caused by elevated energy prices,” said Steven Yu, a senior analyst at consultancy Mysteel.

Steel benchmarks on the Shanghai Futures Exchange struggled.

Rebar dipped 0.16%, hot-rolled coil fell 0.12%, wire rod shed 0.39% and stainless steel slipped 2.02%. Prices of coking coal and coke found continued support from reduced supply, rising 4.66% and 2.45%, respectively.

“A supply contraction is certain; apart from coal mine production suspension, attention should also be paid to the regulation of off-balance-sheet production, which could have a significant impact, providing upward momentum to prices,” analysts at broker Galaxy Futures said in a note.

A fatal mine accident in coal-rich Shanxi province in late May that killed at least 82 people has triggered stringent safety inspections, leading to production suspension at many mines and underpinning coal prices.