FX.co ★ Iron Ore Tests 8-Month Low

Iron ore futures dropped below CNY 700 per tonne in late May, reaching their lowest point since September of the previous year. This decline reflects an increasingly pessimistic forecast for ferrous metal demand in China, the world's largest consumer. The oversupply in the housing market prompted Beijing to consider prohibiting property developers from pre-selling homes, which has traditionally been a critical financing mechanism for these companies. Such a move could exacerbate financial pressure on the debt-laden real estate sector, potentially leading to significant asset liquidations and reducing a vital source of demand in the global steel markets. Should the central government implement these reforms, the impact would be compounded by a reduction in annual output quotas. Baosteel's assertion that total production on the mainland could decrease by 50 million tons this year further supports these capacity limit speculations. This downward trend in iron ore prices persists despite initiatives to boost Chinese consumer activity, including the People's Bank of China's reduction of key lending and liquidity rates and announcements of increased bond issuance.