Iron ore sinks; investors shrug off stockpile reduction

China’s iron ore futures dropped in line with steel rebar futures on Monday, despite a decline in stockpiles, while concerns over leaner downstream demand pulled down sentiment.

The most-active iron ore contract for September delivery on the Dalian Commodity Exchange was down 2.1 percent at 441 yuan ($70.20) a ton.

Construction steel rebar futures on the Shanghai Futures Exchange dipped 0.9 percent to 3,393 yuan per ton. Stockpiles of rebar continued to fall last week, dropping by 521,600 tons to 8.68 million tons.

Meanwhile, iron ore inventory at Chinese ports declined by 731,600 tons to 160.4 million tons compared with the previous week, data from Mysteel Consultancy showed.

“The process of reducing steel products inventories is going smoothly, which is helping to lift sentiment in the market. However, the outlook of weak demand in both the domestic and overseas markets is adding pressure on prices,” said Zhu Hao, an analyst of Orient Futures.

Exports in China unexpectedly fell in March, resulting in a rare trade deficit. Steel exports continued to fall in March, down 25.3 percent to 5.65 million tons, customs data showed, as the Chinese government curbed production to tackle smog.

On Friday, China’s securities regulator disclosed that the country will allow foreign investors to trade in domestic iron ore futures markets starting from May 4, the latest effort by the country to internationalize its commodities market.

“The iron ore futures market will lead to a limited effect on prices as Dalian’s prices have already linked tight with Singapore’s,” said Zhu.

“In the short term, the climbing utilization rate at steel mills is more likely to drive iron ore prices, but will add pressure on steel supply.”