Iron ore routed in woeful week as questions stack up on China

Iron ore's rounding off a woeful week on another soft note as persistent concern about demand in China fuses with expectations of rising supply and falling steel futures to hurt prices. A risk-off mood among investors as North Korean tensions simmered compounded the damage.

The benchmark spot price has tumbled 12 per cent this week, the worst performance since May 2016. In China, futures on the Dalian Commodity Exchange have slumped into a bear market and capped a fourth week of declines, the longest in five months, while Singapore's SGX AsiaClear contracts are chalking up a weekly loss of almost 10 per cent.

Iron ore is in retreat as investors fret about the impact on steel production in China of environmental checks even before winter curbs kick in, which may further hurt demand. This year, steel output has been running at a record pace in the top supplier, aiding iron ore.

Adding further headwinds were fresh threats from North Korea and sanctions from the U.S. that spurred a flight to safety on Friday, as well as a rating cut for China by S&P Global Ratings.

"The environmental curbs are having a serious impact on demand," Fan Lu, an analyst at Sinosteel Futures Co., said in a note on Friday. "After the recent price declines, mills are even more reluctant to build up huge inventories going into the holiday season. At the same time, shipments are reaching a seasonal peak, and that's throwing the market balance out of whack."

Peak Steel
Spot ore with 62 per cent content delivered to Qingdao sank 3.8 per cent to $63.56 a dry metric ton on Friday, extending a slide to the lowest level since July, according to Metal Bulletin Ltd. Prices have dropped every week so far in September, and the losses come as Australia's central bank this week flagged expectations for rising supply, lower prices and peak steel production in China.

Steel prices in China, which accounts for half of worldwide production, are losing ground after hitting multiyear highs. In Shanghai, futures for rebar -- a basic item used in construction -- fell for the seventh time in eight days on Friday to the lowest since July. Coil futures also dropped for a third week.

Iron ore's slump has hurt producers' shares. In Australia, BHP Billiton Ltd. and Rio Tinto Group both posted weekly losses, while Fortescue Metals Group Ltd.'s had the biggest weekly reversal since May. In Brazil, Vale SA has lost ground each for six of the past seven days.