Iron ore fell to its lowest level in more than six weeks on concerns about the outlook for Chinese demand, which has been hit by the prolonged housing crisis. The drop in home sales and the lack of confidence among buyers worries investors. China is in its third year of a slump in the construction sector, which has led to a decline in demand for iron ore.
The Chinese real estate crisis continues to weigh down the economy
The decline in China’s real estate sector continues to affect the country’s economy and exacerbate the liquidity crisis among developers. Policymakers are trying to revive sentiment among home buyers, who are worried about falling prices and non-completion of real estate projects.
Challenges of the Chinese government
The value of new home sales of China’s 100 largest real estate companies decreased 34% in May compared with a year earlier, reaching 322.4 billion yuan ($44.5 billion). This decrease shows the challenges that the country’s government faces to reactivate the real estate market.
Weak housing construction and fall in iron ore prices
Due to a policy shift toward reducing inventories, new housing starts are expected to decline 15% this year, according to Hui Shan, chief China economist at Goldman Sachs Group Inc. In addition, the price of mineral iron will likely fall to $100 per ton in the fourth quarter.
Iron ore supply and steel fundamentals
Iron ore inventories at Chinese ports are the highest in more than two years, indicating abundant supply. Meanwhile, the upward momentum in prices for steel rebar, a product used in construction, is slowing. This has led analysts to forecast a decline in iron ore prices in June.
Iron ore price hits lowest level since April
Iron ore futures in Singapore fell 4.4% to $110.40 per tonne, hitting their lowest level since April 17. This comes as steel contracts shrink in Shanghai and iron ore prices in Dalian decline 2.5%. This downward trend in iron ore prices reflects concerns about demand in China due to the crisis in the real estate sector.
