Spot iron ore fell to its lowest level for the year, at below $120 a tonne, as slower steel demand in top consumer China fanned fears producers may further curb output, with Shanghai rebar futures hitting near nine-month lows on Wednesday.
Some Chinese mills have been selling back iron ore cargoes to the market and traders are unloading shipments at a loss amid expectations that the price of the steel-making raw material may fall further as the Chinese economy sees slower growth.
The International Monetary Fund cut to 7.75 percent its growth forecast for China this year, from 8 percent previously, citing a weak global economy that has hurt its exports.
Benchmark 62-percent grade iron ore fell 2.6 percent to $117.80 a tonne on Tuesday, the lowest since Dec. 4, 2012, according to data provider Steel Index.
That was the steepest single-day decline for iron ore since May 2, when it slid by 3.5 percent. The price has fallen more than 12 percent in May, on track for its worst monthly performance since last August.
"The market is tanking and some mills are selling their contracted cargoes with no premium at all," said a Hong Kong-based iron ore trader.
That suggests the mills are looking at cutting steel production further, as China heads into its seasonally weak consumption season from June, he said.
China's daily crude steel output slipped to 2.185 million tonnes in mid-May, from a record pace of 2.193 million in the first 10 days of the month, industry data showed.
Some traders are also trying to unload cargoes bought when prices were at around $130, the Hong Kong-based trader said. "These traders are deciding to take the loss now because they don't believe iron ore prices will go up in the near term," he said.
Even with Chinese mills eventually replenishing stockpiles, a seasonal increase in the country's own iron ore supply combined with an increase in global seaborne material "suggests that iron ore prices may be weaker in the second half of 2013," Commonwealth Bank of Australia said in a note.
Source: Reuters