Weak demand for steel in China has affected the prices of iron ore in the country. According to the industry analysts and traders, the prices of iron ore would drop further over the rest of the year. Iron ore witnessed a 40% spike in its prices after registering a decade low price. The slumping Chinese economy has lowered the demand for steel in construction sector. With iron ore in abundance in the market, the prices are likely to be hit badly.
Government and industry data has revealed that the production of steel has been cut down amid weak demand. During the period between January and May, steel output fell by 2% compared to the previous year as consumption dropped by 5%. It has been speculated that some miners and traders held back iron ore supply to strengthen the prices. Even though there are signals that iron ore shipments are starting to rise up again, prices will be pressured.
According to the analysts, the current iron ore prices are quite high. As necessary supply cuts are unlikely to happen, this will lead to surplus iron ore in the market. He estimated that if the construction sector in the country further slows down, price of iron ore would fall below US$40 per tonne. In early June, iron ore prices reached a five-month high at US$65.40 per tonne. But this week witnessed 6% drop in the prices.
The sharp price recovery in early June resulted due to reduction in the stocks of imported iron ore at the Chinese ports. From January to May 2015, the domestic iron ore output in China dropped by 11%. Industry analysts point out that there is no use in holding back supply of the iron ores in the hope that prices would rise up.