[stock-ticker]

Iron ore is in free-fall

via DAVID SCUTT

Iron ore prices have collapsed, logging the largest decline in years on Monday.

And in the case of lower and higher grades, the largest plunge on record.

According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 8.4% to $64.25 a tonne, its largest one-day percentage drop since April 12 last year.

The benchmark has now fallen for five consecutive sessions, losing a mammoth 15.6% in the process, leaving it at the lowest level since July 17.

Like the benchmark, lower and higher grade ores were also smashed, recording the largest declines in the era of spot pricing.

The price of 58% fines slumped 9.1% to $39.72 a tonne, leaving it at the lowest level since September 24. It’s now fallen

The price of 65% Brazilian fines also fell by 8.9% to $81 a tonne, a level not see since April 9.

It was an ugly move, driven by reports that Chinese steel mills were offloading existing inventories given a increasingly pessimistic outlook for Chinese steel demand.

“[There are] reports that Chinese steelmakers were offloading inventories,” he says, referring to the recent seen in spot and futures markets on Friday.

“Prices are falling as declining steel margins dent expectations of Chinese steel production.”

Helping to explain the liquidation of existing inventories, profit margins at Chinese steel mills have collapsed over the past month, casting doubt over the outlook for both steel production and, as a consequence, iron ore demand.

“Chinese steel mill margins have dropped sharply in recent weeks, primarily driven by lower steel prices,” Dhar says.

“[This is] in stark contrast to the profits the sector has enjoyed over the last 18 months.

“Low margins will discourage steel mills to produce.”

Contributing to the selloff in iron ore spot markets on Monday, Chinese steel futures were also hammered, extending the slide from recent cyclical peaks to over 20%, leaving them in a technical bear market.

Rebar futures in Shanghai tumbled to 3,553 yuan, well below Friday’s night session close of 3,627 yuan. The January 2019 contract briefly fell to as low as 3,496 yuan, the lowest level since June 26 and down 21% from the seven-year high of 4,418 yuan struck in August.

Hot-rolled coil futures were also hammered on Monday, sliding to 3,392 yuan, down from 3,465 yuan on Friday evening.

The weakness in steel futures flowed through to bulk commodity contracts traded separately in Dalian, especially iron ore.

After finishing Friday’s night session at 487 yuan, the January 2019 iron ore contract immediately tumbled to 477.5 yuan a stayed there, leaving it down 6% from Friday’s day session close.

Were it not for market rules preventing the contract from falling more than 6% in any one session, the losses would likely have been greater. Given movements in futures markets are often larger than those in spot markets, and the losses in spot markets were larger on the day, one suspects futures could have easily fallen more than 10% without rules preventing larger losses.

Like iron ore, coking coal and coke futures were also slammed, finishing at 1,297 and 2,115 yuan respectively, down from 1,321.5 and 2,170 on Friday evening. Those closing levels represented declines of 4% and 5.2% respectively from Friday’s day session close.

After tumbling in recent sessions, there was some rare respite for futures markets in overnight trade on Monday. Except for Dalian iron ore.

SHFE Hot Rolled Coil ¥3,459 , 1.08%
SHFE Rebar ¥3,649 , 1.76%
DCE Iron Ore ¥473.50 , -2.07%
DCE Coking Coal ¥1,319.00 , 1.07%
DCE Coke ¥2,146.00 , 0.42%

Iron ore futures continued to slide despite a rebound in steel, coking coal and coke contracts during the session.

While that suggests iron ore spot markets may weaken again on Tuesday, the broader rebound across the steel complex suggests any weakness, if any at all, will likely be limited in scale.

Trade in Chinese commodity futures will resume at midday AEDT.

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