Benchmark Asian iron ore futures fell on Friday and were on track for their second-biggest weekly loss so far this year, as moves in China to restrict steel mills’ highly-pollutive operations and reduce production capacity weighed on sentiment.
The most-traded May iron ore on China’s Dalian Commodity Exchange was down 0.3% at 1,059 yuan ($163.11) a tonne by 0700 GMT, and has fallen 6% this week.
The front-month contract for the steelmaking ingredient on the Singapore Exchange dropped 3.2% to $159.35 a tonne and was poised to decline by 5% this week.
China’s Ministry of Ecology and Environment has urged the country’s top steelmaking city of Tangshan to crack down on violators of air quality rules after four mills had failed to implement production curbs during days of heavy pollution.
The Tangshan government issued a second-level pollution alert on March 8, urging heavy industrial companies such as steelmakers and coking plants to cut production accordingly.
The move dampened the market’s optimism about a post-Lunar New Year demand boost for iron ore in the world’s top steel producer, sending prices 5.7% lower to $166 a tonne on the same day, based on SteelHome consultancy data. SH-CCN-IRNOR62
“The market vomited $10/tonne in one day as financial investors misdiagnosed the impact of recent environmental restrictions on Tangshan steelmaking capacity,” said Atilla Widnell, managing director at Navigate Commodities in Singapore.
He said 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”.
Rebar on the Shanghai Futures Exchange rose 2.9%, while hot-rolled coil climbed 3.1%. Stainless steel slipped 0.1%.
“Driven by stringent control and some production cuts by the mills, steel markets remained buoyant due to constrained supply,” ING senior commodity strategist Wenyu Yao said.
Dalian coking coal fell 1.5% while coke slumped 3.6%.
Source: Reuters (Reporting by Enrico Dela Cruz in Manila)