Iron ore traders are expecting the spot price for the bulk commodity to drop below $US100 a tonne overnight as futures fell, pressured by rising supply and a weaker Chinese steel market.
The spot price for the bulk commodity dropped 2 per cent to $US100.70 a tonne on Friday, the lowest since September 11, 2012. It's down 25 per cent since the beginning of the year.
The price will most likely fall below $US100 later on Monday, traders told Reuters, with bids for high-quality 62-per cent grade cargoes quoted as low as $US94.
"Certainly I will say some Chinese mines will be shut and that means import volumes may remain strong and that could support the price above $US90," the wire quoted a Shanghai trader as saying.
Fears of further losses in the bulk commodity’s price weighed on shares of Australian iron ore miners on Monday, pulling Fortescue Metals Group shares down 4.2 per cent to $4.39 and Rio Tinto down 2.8 per cent to $60.205.
‘‘Panic certainly seems to have set in for all things iron ore at the moment,’’ said IG market strategist Stan Shamu. ‘‘However, it is important to note that Chinese steel production is running at record rates with most steel production actually being exported.
‘‘As a result these fears are likely to be more shadow-banking related. In fact, the current price for the futures translates to a price of around US$114.08/t for iron ore.’’
The last time iron ore prices fell below $US100 was in September 2012, it stayed below that level for about two weeks, recovering only after reaching a three-year trough of $US86.70.
Iron ore futures at the Dalian Commodity Exchange fell 2.6 per cent in early trade on Monday, touching a low of 703 yuan ($US112.30) a tonne, the weakest for a most-active contract since the bourse launched the product in October last year. It was last down 1.4 per cent at 712 yuan.
On the steel market, rebar futures steadied on Monday, but were still near record lows reached on Friday. The most-traded rebar for October delivery on the Shanghai Futures Exchange was little changed at 3096 yuan ($US500) a tonne by midday, after hitting an all-time low of 3063 yuan in the previous session.
Steel prices have suffered since the Chinese government signalled, as part of its attempts to become a more market-based economy, that it will shut down inefficient, unprofitable and polluting steel mills.
This is likely to lead to consolidation with China's steel industry in the longer-term, if enacted, and would lead to a higher, more stable steel price.
“Chinese steel mills remain largely sidelined, awaiting a market test at $US100 per tonne,” ANZ head of commodities Mark Pervan said last week.
“Speculation is the level will uncover better interest as many domestic iron ore producers are unable to operate profitably below that level.”
“Past episodes of depressed prices have resulted in domestic producers stepping down production until prices recover. A marked reduction in domestic supply is positive for seaborne iron ore demand,” Mr Pervan said.