Why Is Iron Ore Price Declining in China's Market?

Iron ore price trends have been on a steep downward trajectory in recent weeks, with significant implications for global mining companies and steel producers. The September contract on China's Dalian Commodity Exchange fell 1.32% to 708.5 yuan ($98.92) per metric ton, while the benchmark August iron ore contract on the Singapore Exchange dropped 0.98% to $93.1 per ton, according to recent market data.

This decline represents the continuation of a concerning trend for suppliers, with prices retreating from their 2023 peaks as multiple economic factors converge to create bearish market conditions.

Understanding the Current Iron Ore Price Slump

The current price slump reflects a complex interplay of supply and demand fundamentals unique to the post-pandemic recovery phase. Iron ore, as the primary raw material for steel production, serves as a bellwether for industrial and construction activity, particularly in China, which consumes approximately 70% of global seaborne iron ore.

"The current market dynamics reveal a significant divergence between steel production capacity and actual end-user demand, creating downward pressure throughout the supply chain," notes industry analyst Zhang Wei from Beijing Steel Research Institute.

Several market indicators point to continued weakness:

• Benchmark prices have fallen approximately 15% since their March 2025 peak
• Port inventories in China have increased to 136 million tonnes, 12% higher than the five-year average
• Blast furnace utilization rates at Chinese mills have dropped to 82%, down from 89% in January

These indicators collectively signal the market's structural challenges beyond normal seasonal fluctuations.

How China's Manufacturing Slowdown Affects Iron Ore Demand

Persistent Manufacturing Contraction

China's manufacturing sector has contracted for the third consecutive month in June, according to the official Purchasing Managers' Index (PMI). Although the contraction pace has slowed slightly, the persistent downward trend signals fundamental weakness in industrial activity that directly impacts iron ore demand insights.

The manufacturing PMI stood at 49.3 in June, compared to 49.1 in May and 49.0 in April—all below the 50-point threshold that separates growth from contraction. This continued underperformance has translated to reduced steel consumption across various manufacturing sectors, from automotive to appliances and machinery.

Business sentiment remains subdued despite government efforts to stimulate economic activity. Many factory owners report hesitancy to expand production or make significant capital investments due to uncertainty about domestic and export demand.

Property Sector Crisis Impact

China's real estate market, traditionally responsible for approximately 35-40% of the country's steel consumption, continues to face severe challenges. The property crisis, which began with the Evergrande default in 2021, has evolved into a systemic issue affecting the entire construction sector.

New residential construction starts have fallen by 24% year-on-year in the first half of 2025, according to China's National Bureau of Statistics. This dramatic reduction in building activity has substantially decreased demand for reinforcement bars, wire rod, and other construction steel products.

The property sector's problems appear increasingly structural rather than cyclical, with significant implications:

• Reduced apartment pre-sales limiting developer cashflow
• Local government land sale revenues declining 32% year-on-year
• Construction company bankruptcies rising 47% compared to 2024
• Mortgage lending growth at its lowest level since record-keeping began in 2009

These factors create a persistent drag on iron ore demand that cannot be quickly reversed, even with targeted policy interventions.

What Supply Factors Are Influencing Iron Ore Markets?

Australian Supply Warnings

Australia iron ore leadership has been challenged as the Office of the Chief Economist has issued warnings about lower iron ore prices in its recent quarterly resources outlook. As Australia supplies approximately 55% of China's iron ore imports, these assessments significantly influence market sentiment and pricing expectations.

The report specifically cited "weakening Chinese steel demand, particularly in the construction sector" as the primary reason for its bearish outlook. Australian producers, including mining giants BHP, Rio Tinto, and Fortescue Metals Group, have begun reassessing their production guidance in response to these market conditions.

"We're observing a fundamental recalibration of the iron ore market as China's steel-intensive growth phase matures," stated an ANZ commodities analyst in a recent research note.

These warnings from Australian authorities are particularly significant given the country's economic reliance on iron ore exports, which contribute approximately 25% of Australia's total export revenue.

Shipment Volume Reductions

Data from Chinese consultancy Mysteel reveals a 7.4% decrease in iron ore shipments from top producers Australia and Brazil during June 23-29, reversing the previous week's increase. This reduction indicates suppliers are beginning to respond to weakening demand signals by adjusting their export volumes.

Major producers appear to be implementing a more cautious approach to production and shipments:

• Vale reported a 3.2% reduction in quarterly production compared to Q1
• Rio Tinto's Pilbara operations scheduled maintenance during the traditional low-demand summer period
• Several mid-tier Australian producers have delayed expansion projects

These supply adjustments, while modest so far, could accelerate if demand weakness persists, potentially providing some price support in the medium term.

How Are Chinese Steel Markets Responding?

Steel Billet Export Concerns

One of the most striking developments in China's steel industry has been the dramatic increase in steel billet exports. According to customs data, these exports have more than tripled in the first five months of 2025 compared to the same period last year.

This export surge has prompted Jiang Wei, secretary general of the China Iron and Steel Association, to advise authorities to implement export restrictions. Wei warned that full-year billet shipments could exceed 10 million tons if left unchecked, potentially disrupting global steel markets.

The export boom reflects domestic oversupply as Chinese steelmakers struggle with weak Chinese demand. By exporting semi-finished products like billets, producers can maintain production levels while avoiding flooding the domestic market with finished steel products.

This strategy raises several concerns:

• Potential trade tensions with importing countries
• Circumvention of existing finished steel export restrictions
• Environmental impacts of producing steel in China rather than at point of use
• Lower value-added exports reducing industry profitability

The situation highlights the interconnected nature of global steel and iron ore markets, where oversupply in one region quickly affects pricing worldwide.

Domestic Steel Price Weakness

Most steel benchmarks on the Shanghai Futures Exchange have declined alongside iron ore prices, reflecting the widespread weakness in the steel supply chain. Recent price movements include:

The marginal gain in hot-rolled coil, used primarily in manufacturing rather than construction, represents one of the few bright spots in an otherwise bearish market. However, this 0.06% increase is negligible in the context of broader market weakness.

Steel mill profit margins have compressed significantly, with many producers operating at break-even or loss-making levels. Industry data suggests the average profit margin for Chinese steel producers has fallen to just 1.3%, compared to 5.8% in 2023.

What's Driving Seasonal Demand Patterns?

Traditional Summer Slowdown

The iron ore market typically experiences softer demand during summer months in China due to a combination of factors:

1. High temperatures limiting outdoor construction activity
2. Increased rainfall in southern provinces disrupting project schedules
3. Traditional maintenance periods for steel mills
4. Reduced electricity allocation to heavy industry during peak cooling demand

These seasonal factors normally cause a 5-10% reduction in steel output during July and August compared to peak production months. However, current market conditions suggest this seasonal pattern is being amplified by the broader economic concerns outlined above.

Historical data shows summer price dips typically recover by September as construction activity resumes. However, analysts are questioning whether this traditional recovery pattern will hold given the structural challenges in China's property sector.

Steelmaking Input Cost Pressures

The weakness in iron ore prices is mirrored across the entire steel production value chain. Other key steelmaking ingredients on the Dalian Commodity Exchange have declined significantly:

• Coking coal: -3.32% to 1,691.5 yuan per ton
• Coke: -2.46% to 2,227 yuan per ton

These parallel declines indicate reduced demand throughout the steelmaking process rather than substitution between input materials. The synchronized price movements suggest market participants are responding to the same fundamental demand weakness rather than commodity-specific factors.

Input cost reductions might eventually support steel producer margins, but only if the pace of finished steel price declines slows relative to raw material costs.

What Are the Market Outlook and Implications?

The current iron ore price slides on weak Chinese demand present significant challenges for producers, traders, and investors. Understanding the potential trajectories and implications is crucial for strategic decision-making.

Short-Term Price Projections

Analysts anticipate continued pressure on iron ore prices in the near term as Chinese demand remains constrained by manufacturing weakness and property sector struggles. The combination of bearish demand signals and supply adjustments suggests limited upside potential in the coming weeks.

Several factors will likely influence short-term price movements:

• Weekly steel production figures from China's National Bureau of Statistics
• Iron ore port inventory levels at major Chinese ports
• Further policy announcements regarding property sector support
• Potential steel export restrictions
• Producer announcements regarding shipment adjustments

The traditional post-summer demand recovery typically begins in September, but market participants are increasingly skeptical about whether this seasonal pattern will materialize given the structural challenges in China's economy.

"The market is looking for catalysts that could change the current trajectory, but meaningful property sector recovery appears increasingly unlikely in 2025," notes a commodity strategist at a major investment bank.

Technical analysis suggests key support levels for iron ore around $90/ton on the Singapore Exchange, with significant resistance at the $100 psychological threshold.

Long-Term Market Considerations

Supply-Demand Rebalancing Efforts

Major iron ore producers appear to be adjusting shipment volumes in response to weaker demand signals, which may eventually help stabilize prices. However, the highly concentrated nature of iron ore supply—with the "Big Four" producers (Vale, Rio Tinto, BHP, and FMG) controlling approximately 70% of seaborne trade—creates complex market dynamics.

These major producers face challenging strategic decisions:

• Maintaining market share versus supporting prices
• Investment timing for replacement mines as existing assets deplete
• Balancing shareholder returns with growth opportunities
• Managing ESG considerations, particularly carbon emissions reduction

Significant price recovery would likely require more substantial improvement in Chinese industrial activity and construction, or alternatively, more aggressive supply discipline from major producers.

Policy Response Possibilities

Chinese authorities may implement additional economic stimulus measures to boost industrial activity and construction if the slowdown persists, potentially supporting iron ore demand. Recent policy announcements have included:

• Reduced reserve requirement ratios for banks
• Interest rate cuts for first-time homebuyers
• Increased local government special bond issuance quotas
• Tax incentives for manufacturing upgrades

However, the timing and scale of such interventions remain uncertain. The Chinese government appears increasingly focused on quality rather than quantity of growth, suggesting any stimulus may be targeted rather than the broad-based infrastructure spending seen in previous economic cycles.

The potential for policy intervention creates significant event risk for iron ore prices, with the possibility of sharp rallies on positive policy announcements.

FAQ About Iron Ore Market Conditions

What is causing iron ore prices to fall?

Iron ore prices are declining primarily due to weak demand from China, where manufacturing has contracted for three consecutive months and the property sector continues to struggle. The official manufacturing PMI has remained below the 50-point expansion threshold since April 2025, indicating persistent industrial weakness.

Additional factors include seasonal demand patterns, with summer traditionally representing lower construction activity in China, and warnings from Australian authorities about lower price expectations. The confluence of these factors has created significant bearish sentiment in the market.

How much have iron ore shipments decreased?

Iron ore shipments from Australia and Brazil fell by 7.4% during June 23-29 compared to the previous week, according to data from Chinese consultancy Mysteel. This decline reversed a significant increase observed in the prior week, suggesting producers are becoming more responsive to weakening demand signals.

The shipment reduction represents one of the first concrete supply-side adjustments to the current demand weakness. If maintained or expanded, such supply discipline could eventually help rebalance the market and provide price support.

What is happening with China's steel exports?

China's steel billet exports have more than tripled in the first five months of 2025 compared to the same period last year, according to customs data. This surge prompted the China Iron and Steel Association to warn that full-year shipments could exceed 10 million tons if left unchecked.

The export boom reflects efforts by Chinese steel producers to maintain production levels despite weak domestic demand. By exporting semi-finished products like billets, mills can operate at higher utilization rates while avoiding flooding the domestic market with finished steel products.

How are other steelmaking materials performing?

Other steelmaking ingredients are also declining, with coking coal falling 3.32% and coke dropping 2.46% on the Dalian Commodity Exchange, indicating weakness across the entire steel production value chain.

These parallel declines suggest the market is experiencing a broad-based reduction in demand rather than substitution between input materials. The synchronization of price movements across the steel production supply chain reflects the fundamental nature of the current demand weakness.

Furthermore, the price decline analysis indicates that these conditions may persist through much of 2025, with the 2025 iron ore forecast suggesting limited upside potential without significant policy interventions.

Disclaimer: This article contains market analysis and forecasts based on current data and expert opinions. Commodity markets are inherently volatile and subject to rapid changes based on economic developments, policy decisions, and supply disruptions. Readers should conduct their own research and consult financial advisors before making investment decisions based on the information presented.

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