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Iron ore sinks below $100 on grim China demand outlook

Dalian and Singapore iron ore futures tumbled below $100 on Friday on heightened fears over waning demand for steel, as China’s economy faltered in the second quarter and a crisis in its property sector appeared to be worsening.

Top steel producer and iron ore consumer China’s economy contracted by a worse-than-expected 2.6% in the second quarter from the previous quarter due to COVID lockdowns.

The most-traded September iron ore on China’s Dalian Commodity Exchange DCIOcv1 was down 10% at 645 yuan ($95.32) a tonne at the end of daytime trade, after earlier hitting 641.50 yuan, its lowest since Dec. 15.

It has fallen 13.3% this week, the steepest drop since mid-Feb.

On the Singapore Exchange, the front-month August contract for the steelmaking ingredient SZZFQ2 dropped 4% to a session-low $96.25 a tonne, its weakest since November, putting it on track for a weekly loss of more than 11%.

Mirroring weakness in iron ore demand, China’s crude steel output fell 3.3% in June compared with a year earlier, and was down 6% from May.

Chinese steel producers are cutting back on output to help curb emissions and with margins squeezed by weak demand, clouding prospects for an immediate rebound in consumption of steelmaking ingredients.

They are also facing more headwinds with bad weather, COVID curbs, and an ongoing crisis in the property sector.

Chinese banks are set to take a hit to asset quality from mortgage business as growing numbers of homebuyers threaten to stop loan repayments to protest against unfinished apartments, adding to woes for the property sector.

“We believe government needs to intervene decisively and swiftly in order to stabilize property and capital market sentiment,” J.P.Morgan analysts said in a note.
Rebar SRBcv1 on the Shanghai Futures Exchange slumped 7.2%, while hot-rolled coil SHHCcv1 tumbled 7.3%. Stainless steel SHSScv1 shed 4.2%.
Dalian coking coal DJMcv1 dropped 7.3% and coke DCJcv1 lost 2.9%.
Source: Reuters (Reporting by Enrico Dela Cruz in Manila; Editing by Amy Caren Daniel and Sherry Jacob-Phillips)

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