Benchmark Asian iron ore futures witnessed a decline on Monday, as moves by the Chinese authority to reduce steel mills’ operations and reduce production capacity based on pollution concerns weighed on demand.
The most-traded May iron ore on China’s Dalian Commodity Exchange shed 0.3 per cent at $163.11 a tonne while the front-month contract for the steelmaking ingredient on the Singapore Exchange was down 3.2 per cent to $159.35 a tonne and is expected to decline by 5 per cent this week.
China’s Ecology and Environment ministry last week, issued a second-level pollution alert, demanding that heavy industrial companies in the country’s top steelmaking city of Tangshan cut production. The world’s leading steel producer and consumer has also pledged to reduce its steel output in 2021 from the 1.6 billion tonnes recorded in 2020 to cut down on carbon emissions. The move has dampened the market’s optimism about a post-Lunar New Year demand boost for iron ore.
Commenting on this, Atilla Widnell, managing director at Navigate Commodities in Singapore, said the market lost $10/tonne in one day as financial investors had a rethink on iron-ore demand over worries the impact of recent environmental restrictions on Tangshan steelmaking capacity would place a lid on utilisation of the steel making ingredient.
“There is now greater long-term risk to Chinese iron ore demand given the government wants to cut steel capacity and move towards scrap-intensive electric arc furnace production,” he noted.
However, Wenyu Yao ,ING senior commodity strategist said the steel markets remain buoyant as the stringent government control and production cuts by the mills has not posed any negative effect on supply.