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Iron ore fell to its lowest level in more than six weeks, owing to concerns about the prospects for Chinese demand, which has been hit hard by the extended property crisis.
China's housing recession is now in its third year, dragging on the world's second-largest economy and exacerbating a cash shortage among developers. Policymakers are attempting to rekindle enthusiasm among homebuyers who are concerned about decreasing prices and unfinished flats.
In May, the value of new-home sales from the top 100 real estate businesses decreased 34% from the previous year to ¥322.4 billion. While this was less than the 45% drop in April, it illustrates the scope of the problem the nation's government is confronting.
“Housing starts and new construction will remain weak” because of a policy shift toward destocking inventory, said Hui Shan, chief China economist at Goldman Sachs Group Inc. “Our property team expects housing starts to decline 15% this year,” she said, while iron ore prices are likely to drop to $100 a ton in the fourth quarter.
Underscoring the ample supply, iron ore inventories at Chinese ports are the highest in more than two years. Meanwhile, the upward momentum in prices of steel reinforcement bars — a product used in construction — is slowing.
“Our view is iron ore prices will swing downwards in June,” said Ying Wei, an analyst at China Industrial Futures Ltd. “Steel fundamentals have turned weaker, off-season pressure to reduce inventory has increased and production cuts may occur.”
Iron ore futures in Singapore fell as much as 3.3% to $111.70 a tonne, the lowest since April 17, before trading at $111.90 by Prices in Dalian dropped 2.4% to 844 yuan a ton, while steel contracts retreated in Shanghai.
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