Dalian iron ore futures fell more than 2% on Friday, hitting their lowest level since their October launch and dragging down Shanghai steel prices on worries the closure of some mills may trim demand for the steelmaking ingredient. A number of steel mills in China's top producing province of Hebei have been ordered to shut some of their facilities to limit power use as Beijing steps ups efforts to address air pollution.
Hebei produces about a quarter of China's output, which reached a record 716.5 million tonnes last year. The closures are in Wu'an city which has an annual crude steel capacity of 40 to 50 million tonnes. The most-traded iron ore for May delivery on the Dalian Commodity Exchange closed 2.1% lower at CNY 914 (USD 151) a tonne, after falling to as low as CNY 905 earlier. That was its weakest level since China launched the iron ore futures on October 18.
Losses spilled over to steel futures in Shanghai, pulling prices away from 11 week highs reached on Thursday. The most-active rebar on the Shanghai Futures Exchange , also for delivery in May, fell 1.6% to CNY 3,676 a tonne, after rising to as high as CNY 3,745 in the prior session. Rebar dropped 0.4% for the week, its first decline in four weeks.
Even before the closure of some mill facilities in Hebei, China's steel output was dropping in response to leaner demand as falling temperatures in the country curbs construction activity. Average daily crude steel production dropped 3.3% from October to 2.029 million tonnes last month, based on data from the National Statistics Bureau.