Iron Ore Futures Stumble Sub $100 As China Steel Output Slumps 

Tyler Durden's Photo
by Tyler Durden
Wednesday, Nov 03, 2021 - 02:45 AM

Iron ore futures in Singapore dove under $100 per ton Tuesday as Chinese steel output in October recorded its lowest level since March 2020, signaling increasing economic headwinds for the world's second-largest economy. 

Futures for iron ore tumbled for a fifth day as Beijing increased efforts to cap annual steel volumes. Production curbs have been more frequent in the back half of the year as prices have been more than halved since summer. Beijing wants to ensure smelters do not smog up the skies during the Winter Olympics, expected to take place in 1Q22. 

According to Bloomberg, quoting researcher Mysteel who analyzed 247 blast furnaces and 71 electric-arc furnaces, daily steel output in October dropped to the lowest since March 2020. 

"There were frequent requests from local governments to curb production, while lackluster steel demand and softening prices have dampened mills' willingness to produce," Mysteel said. 

"The probability that iron ore demand slides by at least 20% in the fourth quarter is increasing, judging from lower downstream demand," said Orient Futures Co. analyst Xu Huimin. "We have to monitor if mills will actually reduce production on their own, which will worsen the market a step further." 

Since summer, prices in Singapore have slid by more than 50% on China's push to curb emissions in energy-intensive industries. China's real estate market, a top buyer of steel, is under strain from a government crackdown that has pared down leverage in the industry. The decline of iron ore futures has followed the decline in top property developer Evergrande Group's 2023, 2024, and 2025 bonds. 

The Evergrande debt debacle has spread across China's entire property market, causing contagion among other highly leveraged developers. Credit agencies have downgraded highly leveraged companies operating in the space. Many of these companies are pulling back on building which means their demand for commodities, such as steel, copper, cement, and plastics, declines. 

The slowdown in China has resulted in significant declines for miners, such as Rio Tinto Group shares headed for their lowest close since May 2020. 

The official manufacturing purchasing managers' index slipped for a second month in a contraction, under the 50-mark. How long until the PBOC makes it rain to save the Chinese economy?