Those blasted furnaces
The spot price of iron ore plunged again on Thursday for a weekly loss of just under 15% and deeper into uncharted territory as negative sentiment swamps the industry.
The 62% Fe import price including freight and insurance at the Chinese port of Tianjin lost $2.30 or 4.7% to $46.70 a tonne. It was the worst daily drop since March 10 last year when the steelmaking raw material was still trading in triple digits.
That's lowest price since November 2008 when The SteelIndex first started tracking the spot price. In 2008, the benchmark contract price was $60.80 a tonne, which was hiked from the annually-set price in 2007 of $36.63.
Global consumption will shrink this year for the first time since 2009, Deutsche Bank AG said in a report according to Bloomberg.
The bank is forecasting prices may drop below $40 a tonne as exporting mines put off production cuts or simply hang on for longer because weak local currencies help to lower costs, soft crude oil drives down fuel expenses and a record slump in freight charges provide a temporary cushion.
Neither is domestic Chinese producers exit the marketing at the expected pace to make a difference to price drivers. Expectations have been that China's domestic mines which number roughly 1,500 and produce some 350 million – 400 million tonnes a year on a 62% Fe-basis would be the main victims given sub-20% Fe grades and low tech operations.
The country's supply is proving too be stickier than anticipated. That's due to long term agreements and captive mines and the close relationship between local governments, steel mills and miners which means commercial imperatives often take a back seat to other considerations like jobs retention.
On the demand side the outlook is even grimmer.
Steel consumption in China which imports more than 70% of the world's iron ore fell last year for the first time since 1995 after years of overcapacity and low profitability.
In a note on Wednesday Australia's ANZ Bank commented that "mills and traders remain sidelined as threats of environmental inspections and speculation that as much as 40% of steel mill capacity is pegged for closure keeps the outlook negative," according to Reuters.
On Thursday rebar futures on the Shanghai Futures Exchange slumped nearly 2% to hit a session low of 2,352 yuan ($379) a tonne, the lowest level since the launch of the contract in 2009.
Chinese domestic iron ore prices suffered the same fate with Dalian Commodity Exchanged contracts first launched in October 2013 hitting a record low of 381 yuan or around $61 a tonne.
After giving up 47% in 2014, the price of iron ore is now down more than a third in value this year.
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