Iron ore prices have declined sharply from May's 12-month high, with the benchmark 62% Fe CFR Qingdao falling to $101.37/ton on the Singapore Exchange. The sell-off accelerated in early June, driven by weakening Chinese steel demand data and elevated port inventories that have reduced mills' urgency to purchase new cargoes.
Recent steel demand data from China paints a deteriorating picture. Mysteel's weekly survey showed apparent consumption of five major steel products declining 3.1% week-on-week, accelerating from the prior week's 0.5% decline. Construction activity, which accounts for the majority of Chinese steel consumption, has been hampered by persistent rainfall across key economic regions and an early onset of summer heat that has further reduced outdoor work.
Chinese steel prices have softened accordingly, with mill margins narrowing. Some smaller mills have begun to reduce utilization rates in response to thinning margins, though the largest integrated mills with stronger balance sheets continue to produce at near-capacity levels. The combination of weak end-user demand and high output has pushed finished steel inventories higher.
Port inventory data from Mysteel shows iron ore stocks at major Chinese ports remaining elevated at approximately 145 million tonnes, up 8 million tonnes from a month ago. High port-side inventories provide a buffer that reduces the need for mills to cover spot requirements, further weighing on prices and creating a buyer's market for iron ore traders.
The current sell-off offers a procurement opportunity for steel buyers, but caution is warranted. If Chinese property and infrastructure stimulus are announced in response to the demand slowdown, iron ore could quickly rebound. Consider partial coverage at current levels with flexibility to add on further weakness below $95/ton.