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Originally posted by GKatt:
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Iron ore plunges into bear marketAlex GluyasMarkets ReporterAug 2, 2021 – 1.29pmSaveShareIron ore has plummeted to the lowest in two-and-a-half months after China ramped up its commitment to reduce emissions by cutting steel output.Booming demand and limited supply drove iron ore to record highs in the last few weeks but an acceleration in China’s efforts to control steel production is beginning to weigh heavily.The commodity tumbled 7.4 per cent to $US181.57 a tonne on Friday and is now in bear market territory, having fallen 23.5 per cent from the record $US237.57 reached in May.The decline weighed on the Australian dollar which dropped 0.7 per cent to US73.44¢.“We’re seeing iron ore prices coming back down to earth quite quickly which is often the case when fundamentals reassert themselves,” HSBC chief economist Paul Bloxham said.“The slowdown in global manufacturing and reopening of the services sector is occurring against the backdrop of the vaccine rollout and Chinese authorities wanting to take steam out of the commodities market.”AdvertisementThe world’s largest steel producer and exporter is attempting to cap output and overseas sales at below last year’s record levels as part of an effort to reduce pollution and boost domestic supply.China has had limited success so far. Production climbed 12 per cent in the first half of the year, meaning a substantial drop this half for China to meet its objectives.‘Significant contraction’“Plans to cap steel output growth in 2021 at 2020 levels implies a significant contraction in the second half of 2021,” said CBA mining and energy commodities analyst Vivek Dhar.“China’s crude steel output expanded around 12 per cent in the first half of this year. A similar rate of contraction would be required this half for China’s crude steel output to remain unchanged from 2020 to 2021.”However, there are early signs that China is getting on the right track. Bloomberg reported that daily crude-steel output at major mills fell 5.6 per cent in the first 10 days of July from June. It followed a drop of 5.6 per cent in June.China’s most recent push, which has triggered the selloff in iron ore, comes as the government urges steel mills to limit output.The world’s fourth-largest steel producer, Shagang Group, said last week that it would curtail production and overseas sales to comply with government efforts to cut emissions. Additionally, Chinese steel mills have reportedly resold contracted iron ore volume back to the market, according to S&P Global Platts.The growing traction of the restrictions is set to have important implications on iron ore markets, particularly as China experiments with the optimal grade of ore to use.The nationwide focus on reducing steel output will allow iron ore prices to decline without steel mill margins needing to fall according to Mr Dhar. It also means productivity at steel mills will be a lower priority.RELATEDCommodities bounce as China unleashes $206b of cashHistorically, these conditions have triggered a shift in preference away from higher grades of iron ore – a trend seen last week with high-grade premiums declining. However, this does not necessarily guarantee that a sudden shift to lower grade products is imminent.“Using lower iron ore grades means higher impurities and higher coke requirements (derived from coking coal),” Mr Dhar said.“With coke and coking coal prices elevated in China, a shift to low iron ore grades may not be the most economic decision for steel mills. The optimal mix of steel raw materials will likely only be known once the recent price volatility subsides. And that could be weeks.”The decline in lower grade iron ore spot prices led the sell-off last Friday. Ore with 58 per cent iron content plummeted 10.8 per cent to $US131.50 a tonne according to NAB.
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Bear market ,what a load of bullocks.
(20min delay)