Posted on 24 Nov 2014
Chinese iron ore and steel futures tumbled to record lows on Tuesday after data showed a deepening decline in China's home prices, the latest evidence of economic weakness in the top consumer of both commodities. China's home prices fell an annual 2.6 percent in October despite a range of government's support measures. It was the steepest year-on-year fall since Reuters started calculating nation-wide prices in 2011.
The losses in futures could stretch iron ore's rout. The steelmaking ingredient is at its weakest since 2009 and has fallen 44 percent this year as big, low-cost miners such as Rio Tinto, BHP Billiton and Vale boosted output amid slowing demand growth in top importer China. Iron ore for May delivery on the Dalian Commodity Exchange fell 3.9 percent to close at its downside limit of 487 yuan ($80) a tonne, its weakest since the bourse launched iron ore futures in October 2013.
The benchmark spot iron ore price dropped 0.5 percent to $75.10 a tonne on Monday, the lowest level since June 2009, according to data compiled by The Steel Index. A breach of the 500-yuan support level fuelled more selling on the Dalian contract, said a trader in China's eastern Shandong province who trades Dalian iron ore futures and predicts a further drop to 480 yuan before any recovery. "The price has stayed around 500 yuan for about two weeks and the level was finally broken today. People think the market will fall further because supply is much more than demand." Citigroup last week forecast that iron ore could drop below $60 per tonne in 2015 on renewed growth in supply and further weakness in demand.
Stocks of imported iron ore at China's ports rose for a second straight week to stand at 108.75 million tonnes last week, based on data tracked by SteelHome. The rise in port stockpiles "raised concerns that underlying consumption is weak," Australia and New Zealand Banking Group said in a note. "This was compounded by the rise in bad loans in China, which could slow down investment growth even further." Non-performing loans at Chinese banks rose 72.5 billion yuan from the previous quarter to 766.9 billion yuan at the end of September.
