Iron Ore Futures Decline Amid Production Curbs and Rising Inventories

Iron ore futures traded in Dalian and Singapore extended their losses on Monday as concerns arose over weaker demand in the near term due to expected production curbs in Tangshan and Handan, two of China’s top steel-producing cities.

The restrictions were introduced in response to heavy pollution, which has led to a level 2 emergency response being launched in Tangshan. Although it remains unclear how long the restrictions will last, several mills have planned to reduce their sintering capacity between 30% and 50%. The opening of China’s annual parliament meeting on March 5 may have contributed to the production curbs, as Beijing typically makes extra efforts to ensure clear skies during the high-profile event.

Inventories Climb

Portside inventories are also increasing, adding to the headwinds on iron ore. Total stockpiles rose up to 1.5% last week, reaching the highest level in 2023. As a result, the most-traded May iron ore futures contract on the Dalian Commodity Exchange (DCE) traded 0.55% lower at 903.50 yuan ($129.80) a ton, while the benchmark March iron ore contract on the Singapore Exchange fell 0.95% to $125.55 a ton.

Coal Prices Rise

Meanwhile, coking coal and coke prices rose on expectations of reduced supply after coal mines stepped up safety checks following a serious accident last week. It prompted mines to increase safety checks, which could lead to reduced supply in the short term. As a result, coking coal futures in Dalian rose 0.65% to 1,727.50 yuan ($249.01) a ton, while coke futures traded 0.23% higher at 2,352.50 yuan ($339.31) a ton.

Insight

Despite the gains in coking coal and coke, participants remain cautious about the outlook for iron ore. Some experts suggest that the recent production curbs in Tangshan and Handan may be part of a wider effort to reduce steel production and address overcapacity in the industry.

Others point to the fact that China’s steel mills may face stricter environmental regulations and higher costs, which could lead to reduced demand for iron ore in the long term. While the current weakness in iron ore may be temporary, it underscores the volatility of commodity markets and the importance of closely monitoring supply and demand factors.

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