Business/ Companies

Steel stumbles to near record low as China demand cools

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Reuters

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Published: 4:08pm, 24 Nov, 2015

Updated: 4:08pm, 24 Nov, 2015

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In this Wednesday, Nov. 18, 2015 photo, people walk past a sign outside of the SinoSteel Corp. headquarters in Beijing. China's government has allowed a growing number of defaults, hoping investors will be encouraged to look more closely at companies and force risky borrowers to pay more. Now, that stance is being tested by a credit crunch involving SinoSteel Corp., a steel maker that is owned by the Chinese Cabinet and part of an industry the Communist Party says is a pillar of the economy. (AP Photo/Mark Schiefelbein)

Shanghai steel futures languished near a record low on Tuesday amid cooling Chinese demand,

putting more pressure on raw material iron ore that is only a tad off a seven-year trough.

A global glut of iron ore at a time of shrinking steel demand in top market China has caused iron ore prices to fall 38 per cent this year, on course for a third consecutive annual decline.

This has led to deep cost cuts for iron ore producers, both big and small, including mid-cap Australian miner BC Iron which incurred a net loss of A$158.5 million (US$114.07 million) in the year to June.

“Given the price of iron ore, reality needed to be addressed and acted upon. There was no point in building a current and future strategy on hope,” BC Iron Chairman Anthony Kiernan said at the company’s shareholders’ meeting on Tuesday.

Iron ore for immediate delivery to China’s Tianjin port fell 1.8 per cent to US$44.20 a tonne on Monday, according to The Steel Index (TSI).

That was only 10 cents above this year’s low reached in July, which was also the lowest ever for the spot benchmark since TSI began compiling data in late 2008.

Based on annual pricing that preceded the current spot-based system, July’s $44.10 mark was the lowest since 2005, according to data compiled by Goldman Sachs.

“Sentiment in the spot iron ore market was negative, with talk of rising output at iron ore miners flooding the market as steel mills start to shut production,” TSI said in a note.

China’s steel output dropped 2.2 per cent in January-October, while demand fell nearly 6 per cent during the period.

The bleak market has also forced closures among many of China’s steel producers that have been hit by losses as the world’s No. 2 economy heads for its slowest growth in 25 years.

Rebar for May delivery on the Shanghai Futures Exchange hit a low of 1,652 yuan ($259) a tonne, near Monday’s bottom of 1,649 yuan, which was the lowest for a most-traded rebar contract since its 2009 launch. It closed down 0.2 per cent at 1,667 yuan.

On the Dalian Commodity Exchange, May iron ore fell 0.7 per cent to 301 yuan a tonne.