...I've been warning you on BHP and iron ore for awhile now. China’s ‘aggressive’ steel cuts shock iron ore bears Alex GluyasDeputy markets editor
Jun 20, 2025 – 5.00am
Westpac’s veteran commodity strategist and iron ore expert Robert Rennie has been warning for months about the carnage in China’s steel market.
But when Beijing released its monthly data dump earlier this week, which included hotly anticipated insight into China’s steel production, even Rennie was shocked with the state of the country’s once all-mighty property sector.
The world’s largest iron ore consumer produced just 86.55 million tonnes of steel last month, down 6.9 per cent on the previous year and far below Westpac’s forecast of 91 million tonnes. While that was the weakest performance in seven years for May, what was even more concerning was May usually marks the peak for Chinese steel output – the five-year average is 94 million tonnes.
“It was significantly below what we would have expected, emphasising just how aggressively production is being curtailed by the authorities,” Rennie said. “That [steel production] appears to have peaked in March this year should be a concern in terms of seasonal iron ore demand.”
The data sent shockwaves through iron ore markets this week.
Futures on China’s Dalian Commodity Exchange dropped for a sixth straight session on Thursday to trade around 692.5 yuan ($US96.32) a tonne, while prices in Singapore, at around $US92.35 a tonne, are at the lowest level since September.
New home prices in April posted their steepest decline in seven months, while China’s new home starts – the biggest driver of steel demand – have also continued to fall. That has dragged rebar futures to the lowest level in eight years, which may force many mills into early maintenance this month.
“Chinese residential property sales have, at best, only just started to pull out of a tectonic five-year collapse and remain stalled around 15-year lows,” Rennie noted.
And while Beijing’s raft of stimulus measures have supported parts of China’s beleaguered property market, ING argued the policies aren’t targeted at areas which support iron ore markets.
“Recent stimulus policies have focused on clearing property inventories rather than boosting new starts, which will limit the impact on steel demand as it requires new construction rather than clearing unsold stock,” noted ING commodities strategist Ewa Manthey.
Meanwhile, iron ore supply in Brazil – the largest shipper after Australia – is accelerating. The country exported 35.07 million tonnes of the steel-making ingredient in May, which was a record for that month.
That has added to the mountain of iron ore sitting at Chinese ports, with total stockpiles climbing 1.1 per cent last week to 133.4 million tonnes as of June 13, according to Steelhome data cited by Reuters.
“The big elephant in the room remains Simandou, it is coming sooner than expected, and now conservative ramp-up forecasts are under scrutiny,” RBC Capital Markets analysts noted following the broker’s annual Global Mining & Materials Conference in New York City.
Declining grades
Westpac’s Rennie is also concerned about the growing presence of higher quality ore, including from Simandou where ore grades are 66 per cent in places.
That means the amount of iron in Simandou’s ore is far higher than Australia’s biggest exporter Rio Tinto, which last month downgraded the quality of its “Pilbara Blend Fines” product for the first time.
Rather than containing 61.6 per cent iron, each tonne of ore will contain 60.8 per cent iron; the changes will take effect between July and September.
The deteriorating quality of Australian iron ore prompted Platts, part of S&P Global Commodity Insights, to propose changing the benchmark grade of its iron ore index to 61 per cent iron content, from the current 62 per cent.
“The outlook for new supplies of higher grade ore from the Simandou mine in Africa will see a gradual decline in the pricing of Australian 62 per cent FE (iron),” Rennie said.
Westpac believes it is only “a matter of time” before iron ore falls below $US90 a tonne and beyond. The banks forecast prices will average $US86 a tonne in the December quarter and fall even lower in 2026.
Citi this week downgraded its three-month iron ore price target to $US90 a tonne, from $US100 a tonne previously, and cut its six-to-12-month forecast to $US85 a tonne, from $US90 a tonne.
The broker’s “bear case” scenario, which it assigned a 20 per cent probability, involves iron ore touching $US80 a tonne in the fourth quarter.
