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Iron ore futures fell as China's economic expectations impacted the steelmaking feedstock, with prices approaching $100 per tonne, potentially squeezing out higher-cost producers.
The commodity fell more than 5% in Singapore on Wednesday, continuing a downward trend that began earlier this year when it fell from more than $140 per tonne due to concerns over China's potential demand. March's steel consumption hasn't increased as some investors had anticipated.
Without significant fresh stimulus measures from Beijing, cost assistance will be a main priority for iron ore producers. Major international miners such as BHP Group Ltd. and Rio Tinto Group benefit from extremely low costs, but if prices continue to decline, some more marginal output, such as in China or India, would be negatively impacted.
Iron ore fell as much as 5.3% to $103.45 per tonne — the lowest since mid-August — and was at $104.30 in Singapore. Futures in Dalian dropped 3%, and steel contracts in Shanghai were also lower. Across commodity markets, prices typically meet downside resistance at levels where higher-cost producers are no longer profitable. That may force them to reduce or halt operations, cutting supplies to rebalance the market.
In iron ore, the marginal price level has risen substantially in recent years, especially following widespread disruptions to production in Brazil. The “first line of cost defence” for iron ore lies at about $90 to $95 a ton, at which some non-mainstream producers would be loss-making, Citigroup Inc. analysts wrote in a note last month. The majors might pursue curtailments below $75 to $80, they said.
The main culprit in iron ore’s slide towards two digits has been weak demand prospects, which grew dimmer after China’s biggest annual political gathering of the year delivered only incremental pro-growth measures. China’s real-estate woes continue to weigh on appetite for iron ore, with investors tracking the latest debt stress at major developers including China Vanke Co. and Country Garden Holdings Co.
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