FX.co ★ Iron Ore Extends Decline

Iron ore futures have declined to approximately CNY 700 per tonne, retreating from a six-week peak of CNY 740 observed on May 14th, due to a deteriorating outlook for ferrous metal demand in China, the world's largest consumer. China's housing market is experiencing an oversupply, prompting Beijing to consider prohibiting property developers from pre-selling homes. This potential restriction could severely reduce a critical financing channel for developers, increasing financial stress within the already indebted sector and potentially triggering significant liquidations. Such a move would also diminish a crucial source of demand in global steel markets. Should the central government proceed with this initiative, it would intensify the effects of reduced output quotas for the year. Speculation surrounding impending capacity constraints is supported by Baosteel's projection that total mainland production might decrease by 50 million tons this year. The price decline persists despite efforts to enhance consumer spending in China, such as the People's Bank of China reducing key lending rates and liquidity rates, alongside indications of increased bond sales.