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Iron ore price down on fears of regulatory controls

China’s southwest Yunnan province asked local producers to restrict output on steel, aluminum and other materials. Part of the planned production in September would be postponed to the last two months of the year.

The province, which produces about 2.3% of the nation’s total crude steel, is the latest to be targeted as the country steps up its blue skies campaign aimed at reducing air pollution for the Beijing Winter Olympic Games in February.

“We’ve been here before with China trying to ensure blue skies leading into the 2008 Beijing Summer Olympics where we saw iron ore prices pull back quite a lot,” senior economist at Westpac, Justin Smirk, told the Financial Review.

“Markets remain highly sensitive to news of new curbs because iron ore prices are still well above the cost of production.”

“After a very strong first half of 2021, momentum in Chinese steel production has turned negative,” said Lyndon Fagan, a research analyst at JPMorgan.

“Following the typical June peak, it is normal to see a seasonal downturn into July and August. However, the drop appears to be related to general economic weakness, exacerbated by tightening pollutions controls, and relatively low steel mill profitability.”

JPMorgan has lowered its 2021 iron ore price forecast from $181 a tonne to $165 a tonne and its 2022 projection from $150 a tonne to $125 a tonne.

(With files from Reuters)

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