(Bloomberg) -- Iron ore dropped for the fifth time in six days ahead of data this week that’ll shed light on Chinese steel output, as mills in the biggest market battle slumping product prices and challenged domestic demand.
Futures reversed an early move higher, after shedding almost 2% in the week’s opening session. With steel supply in the first half running below last year’s pace, Beijing will release industrial-production data for July on Thursday, including steel output in the world’s largest market.
Initial indications suggest the steel-production figure could show another drop. The purchasing managers’ index for the industry in July showed output at its weakest since March. Separately, a measure of supply from members of the nation’s leading steel group has dropped to the lowest level this year.
“Steel production is clearly set to slow, particularly at smaller, less-efficient steel mills,” said Robert Rennie, head of commodity and carbon strategy at Westpac Banking Corp. “We should get a hint of this in Thursday’s data.”
Iron ore has sunk nearly 30% this year on concerns Chinese demand is struggling amid slower economic growth and the headwind from the nation’s property slump. At the same time, export-tracking data points to unprecedented flows from miners in both Australia and Brazil, the largest shippers.
Among signs of ample supplies, port holdings of iron ore in China have ballooned this year, expanding to within about 10 million tons of the peak set in 2018. China Mineral Resources Group, the state-owned company formed to manage imports of the raw material, said the increase had been driven by “distorted and unsustainable” speculative purchases, according to a statement.
Futures traded 1.1% lower at $98.25 a ton at 5:43 p.m. in Singapore, as yuan-priced futures in Dalian ended flat after a volatile session. In Shanghai, steel contracts retreated.
Among steel products in China, the spot price of reinforcement bar — used in construction — has hit the lowest level since 2017, while hot- and cold-rolled sheet are at their cheapest since the first half of 2020, at the onset of the pandemic.
--With assistance from Martin Ritchie.
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