Iron ore sinks below $100 for first time since March on supply glut

Iron ore sank below $100 a ton for the first time since March, falling 2.3% to $98.90 on the Singapore Exchange, as ample supplies collided with weakening demand from China's steel sector.

"High supply and high inventories are creating a growing contradiction at current price levels," analysts at CITIC Futures said.

China's steel production contracted again in May, while fixed-asset investment and consumer spending slumped to levels not seen since the pandemic, according to Bloomberg data. Port inventories of iron ore have climbed to seasonal highs, with supply from Guinea's Simandou mine — one of the largest new iron ore projects globally — steadily ramping up. First shipments from Simandou landed in China earlier this year and volumes are growing.

Iron ore at $98.90 is about 6% lower year-to-date and has posted five consecutive weekly declines, the longest losing streak since February. The next demand signal comes from China's June steel output data, due in mid-July.

The decline has been compounded by falling freight costs as international oil prices retreated on expectations that the Strait of Hormuz will resume normal shipping, reducing the landed cost of seaborne iron ore. At current levels, iron ore is trading about 15% below the 12-month average of $116.50/ton and more than 40% below the all-time high of $168.80/ton set in May 2021, according to exchange data.

A separate risk is brewing on the supply side: a labor dispute at BHP's Port Hedland operations in Western Australia threatens to disrupt as much as 800,000 tons of daily iron ore shipments, worth about $80 million in revenue, according to the Minerals Council of Australia. The dispute, tied to new industrial relations laws, has not yet affected other miners including Rio Tinto and Fortescue, which export through separate facilities.

This article is for informational purposes only and does not constitute investment advice.