Price of iron ore falls 26% in the quarter on weak demand in China

RIO DE JANEIRO, BRAZIL – Iron ore fell for the second day as data showed a drop in steel purchases from China this month despite a slight improvement in the industrial sector. The commodity’s decline impacts the shares of Vale (VALE3) and steel companies, among the most significant Ibovespa drops on the day.

CSN Mineração (CMIN3): – 5,58%
CSN (CSNA3): – 4,49%
Vale (VALE3): – 1,46%

Ore lost about a quarter of its value in the second quarter, even as China eased restrictions to combat covid-19.

The Chinese steel sector’s purchasing managers’ index fell to the lowest level since the 2008 financial crisis in June, while the same gauge for the manufacturing industry rose above 50 for the first time since February, signaling a slight expansion.

Steel inventories barely fell during the month, despite the reduction in output. This indicates that more time is needed for consumption to affect the oversupply.

New steel orders declined in June, while export orders increased, suggesting weaker domestic consumption relative to global demand.

Bloomberg Economics’ chief Asia economist Chang Shu noted in a research report that a quick recovery in iron ore is unlikely in the year’s second half. She pointed to stress in China’s real estate sector and said the country’s “zero tolerance for covid-19 will hurt consumption.”

“Mill margins at a three-year low and demand growth below expectations have led to selling pressure in the market,” Mysteel said in a note.

Iron ore fell 3.5 percent to US$117.80 a ton in Singapore on Thursday after falling 1.7 percent in the previous session. The loss in the quarter was 26%.

With information from Bloomberg