Iron ore extends losses as China unveils stricter steel capacity control

BEIJING: Iron ore prices extended falls on Tuesday to hit their lowest in more than two weeks, as top user China’s stricter plan to tame overcapacity in the steel industry dampened demand prospects for feedstocks, though firm near-term consumption capped the losses.

The most-traded iron ore contract on China’s Dalian Commodity Exchange (DCE) fell 0.87percent to 798.5 yuan (USD117.50) a metric ton by 0313 GMT, declining for a fourth straight session. It hit its weakest level since April 30 at 796 yuan earlier in the session.

By 0303 GMT, the benchmark June iron ore on the Singapore Exchange slid 0.55percent to USD107.6 a ton, its lowest level since May 4. China issued a tougher steel capacity swap plan on Monday to address overcapacity plaguing the industry that has eroded mill profitability and fuelled growing trade protectionism backlash worldwide.

At least 1.5 tons of old steel capacity needs to exit to build every ton of new capacity thereafter. “The new stricter swap policy will help reduce steel capacity over time and lead to more consolidation in the industry in the long term,” analysts at Morgan Stanley said in a note on Monday.

However, analysts said whether and how much capacity will be reduced will still depend on the actual implementation of the new plan. Daily transaction volumes of seaborne iron ore cargoes more than doubled from Friday to 1.51 million tons on Monday, according to data from consultancy Mysteel, suggesting resilient buying appetite for the steelmaking ingredient.

Coking coal and coke, other steelmaking ingredients, slipped 0.69percent and 0.78percent, respectively. Steel benchmarks on the Shanghai Futures Exchange extended losses on lower raw materials costs. Rebar lost 0.87percent, hot-rolled coil shed 0.7percent, wire rod dipped 0.42percent and stainless steel retreated 1.09percent.