Ore seen struggling to recoup $US50 price point

In an indication that further weakness in the spot price may arrive this evening, Chinese iron ore futures continued to tumble overnight with the most actively traded January 2016 contract on the Dalian Commodities Exchange falling 0.97% to 357.5 yuan.

According to Metal Bulletin, the spot price for benchmark 62% fines slid by $1.55, or 3%, to $49.95 a tonne.

“Any downward room, however, will be small as mines turn reluctant to lower price further”, SMM explains.

Shanghai Baosteel Group Corp (上海寶鋼集團) forecast last week that China’s steel production might eventually shrink 20 percent, matching the experience seen in the U.S. and elsewhere. “The combination of the ongoing ramp-up in supply from Australia and Brazil and the downturn in China’s steel demand will weigh on prices”.

Reining in excessive output is essential for addressing the oversupply issue, as it is unrealistic to hope that demand will increase under the current economic climate, Zhu Jimin, executive vice president of the CISA, was quoted as saying in a report posted on the CISA website on Wednesday.

“This is not a coincidence; it’s an inevitable situation that the Chinese steel industry finds itself in, as the overall economy is facing downward pressure”, said Massachusetts Zhongpu, an analyst at Beijing-based industry consultancy chinaccm.com. Indeed, iron ore prices dropped below $50 per ton for the first time since July this year. Rio Tinto noted earlier this year that the weak price environment led to 125 million tons of high-cost production from China and non-traditional seaborne suppliers exiting the market. In fact, iron ore producers from the US, Mexico and a few African countries have also disappeared from the Chinese market, according to Macquarie.

China, which is world’s largest producer is exporting massive surplus across the globe, which saw prices dropped to lowest in more than a decade.

Stockpiles of iron ore at ports in China, tracked as one gauge of demand, have increased to the highest since May.