Chronicle of raw materials

Iron prices weighed down by too slow Chinese recovery

Audio 01:32

A truck transporting iron extracted from an open pit mine.

Getty Images/John W Banagan

By: Marie-Pierre Olphand Follow

2 mins

Iron ore is down and back to where it was six months ago.

In question, a Chinese production of steel which is packed while the request did not follow.

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In one week, iron ore lost a quarter of its value to its level of last January.

The main reason is the slowdown in Chinese activity.

And a demand from the real estate sector that has not lived up to forecasts.

However, it alone represents nearly 40% of steel consumption - made from iron - in China.

May was reportedly a particularly bad month with a drop of more than 30% in new construction, according to the

.

As a result, the price of steel bars used in the sector fell by 20% during the same month.

This contributed to a collapse in the profits of local steel mills.

Chinese steel mills overestimated demand

China's steel industry has been overly optimistic, according to business news agency Bloomberg.

Production accelerated as the Covid rebounded.

It rose to more than three million tonnes a day in April and May, according to data from Gavekal Dragonomics, a financial services and advisory firm, while in January and February it was two and a half million tons per day.

At the beginning of June, the steelworks were still running at full speed, according to the same source.

But since then, some would have paused.

Automotive sheet sales down

This desire to produce at all costs was a risky bet and the backlash is now being felt.

The overproduction has swelled the stocks of steel-based products which were already high at the start of the year in the country.

The result could only translate into lower prices.

By buying 70% of the volumes of iron marketed, China still rules the market.

A global market which is also marked by a drop in sales of sheet steel for the automotive sector.

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