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Iron ore tumbles as rising supply outweighs demand optimism

Iron ore futures tumbled on Wednesday, with the Dalian benchmark shedding more than 5%, as easing concerns about global supply tightness and falling steel margins in China fuelled sell-offs.

Iron ore’s most-traded January 2021 contract on China’s Dalian Commodity Exchange closed 5.1% lower at 796.50 yuan a tonne, its weakest level since August 3 and biggest one-day fall in nearly six months.

The steelmaking ingredient slumped 3.8% to $119.15 a tonne on the Singapore Exchange by 0716 GMT.

Iron ore demand in China, which accounts for more than half of the world’s steel output, has rebounded strongly since April as mills ramped up steel output, encouraged by the government’s infrastructure-led economic stimulus measures.

That, along with supply constraints and signs of a recovery in steel demand elsewhere, had lifted iron ore prices to their highest levels in more than six years in recent weeks.

While Tuesday’s August industrial output data showed China’s recovery from the coronavirus crisis gathering pace, ANZ senior commodity strategist Daniel Hynes said “signs of rising iron ore supply quelled the enthusiasm of stronger demand”.

Iron ore stockpiles at major Chinese ports jumped last week to the highest level since April, based on SteelHome consultancy data, while latest industry numbers showed increased shipments from Australia and Brazil.

“Iron ore prices have likely topped in the near term, as falling blast furnace margins have started to incentivise steel mills to shift away from mainstream fines into blended fines, lumps and pellets,” Citi analysts said in a note.

Some analysts, including those at Citi, expect prices to remain supported, however, at $100 a tonne for the rest of 2020.

Steel prices also fell on Wednesday, with rebar down 1.8% on the Shanghai Futures Exchange, while hot-rolled coil dropped 2.1% and stainless steel slumped 2.4%.

Coking coal dipped 1.1% and coke slid 3%.
Source: Reuters (Reporting by Enrico dela Cruz, additional reporting by Min Zhang in Beijing; Editing by Subhranshu Sahu)

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