Seaborne iron ore prices reached a new historic low Tuesday as the Platts 62% Fe Iron Ore Index, or IODEX, lost $0.75/dmt on the day to reach $44/dmt CFR North China.
It is the lowest point the IODEX has been since Platts' began spot assessments in June 2008.
The previous low was on July 8, when it was assessed at $44.50/dmt CFR North China.
Since the start of the year, the IODEX has lost 39% in value, with $44/dmt CFR North China marking a significant decline from the $71.75/dmt CFR North China level assessed January 2.
With the steelmaking industry in China -- the largest consumer of iron ore as raw material -- struggling with heavy losses, declining prices and poor downstream sales, buying appetite for seaborne ore cargoes was limited and cautious at best.
Steelmakers were also heard to be considering production cuts to alleviate tumbling margins, with some smaller to medium mills already instituting lower output levels and taking blast furnaces offline.
This would significantly reduce the spot interest for ore cargoes.
Unbalanced fundamentals also weighed on seaborne prices, with end-users aware there was still a lot of available supply flowing into China, resulting in little pressure to grab material. Mining giants like Rio Tinto and Vale continue to forge ahead with expansion plans, leaving the market very adequately supplied with raw material, outweighing current demand conditions among Chinese end-users and traders.
Adding to the bearish steel fundamentals was the colder weather in China, especially in the northern regions. Wintry weather causes productivity in the downstream industries of construction and infrastructure development -- the heaviest users of steel -- to decline.
Resulting weaker steel demand has been exerting a knock-on effect on seaborne iron ore demand as weather conditions become harsher in China.
In addition, Chinese buyers have consistently said they now prefer to head to local ports to buy dockside cargoes instead of committing to larger volumes of seaborne ores.
Seaborne cargoes range from half to full-Capesize vessels, posing more exposure risk for loss-making mills unwilling to take on more tonnage at present, convinced of a sustained downtrend in spot prices.
Chinese buyers are able to buy ore in smaller lots of 5,000-10,000 mt at the ports, preferring this safer alternative to purchasing large seaborne shipments.
In the meantime, several Chinese end-users also told Platts that as the end of the year approaches, banks have been getting more proactive in chasing for payment for loans granted to steelmakers as they wanted to close their accounts.
This has resulted in tighter credit flow among steelmakers under pressure to settle their debts and less available fresh loans being granted by the banks as well, all of which has severely limited the ability of steelmakers to buy seaborne iron ore cargoes.
