Dow Jones reported that the slump in iron ore spot prices is likely to worsen over the next few months as Chinese steelmakers hold down fresh ore imports in favor of existing stockpiles, raising questions over Chinese demand and the viability of the newly minted quarterly pricing system for the steelmaking material.
But over the longer term, spot prices, which have fallen more than a fifth since last month and recorded a further sharp decline over the weekend, should rebound with China likely to have to resume a high level of ore imports as falling domestic ore quality continually raises costs for its steelmaking industry.
When that happens could depend on how successful Chinese policymakers are in reassuring steelmakers that curbing property speculation won''t mean a collapse of the housing market and the broader economic climate.
Chinese steelmakers are warily watching global macroeconomic uncertainty unfold, with the European debt crisis progressing, even as domestic policymakers take tough measures to manage nascent asset bubbles, creating a downturn in demand that some predict will slash spot iron ore to as low as USD 120 per tonne in the third quarter of the year.
Spot prices fell sharply recently to USD 145 per tonne down by 24% from near record highs in late April as China''s demand slowed amid giddy import prices and the government measures to cool the property sector.
According to Metal Bulletin data released Tuesday the market sharp decline began accelerating midway through this month, with spot prices diving 7% between Friday and Tuesday alone to USD 145 per tonne to USD 150 per tonne and further weakness is likely.
To some degree, the decline was expected. China''s iron ore imports last month hinted at a slowdown falling 6% from March and 3% on year.
Mr Chen Yue Shanghai Cifco Futures analyst said "Lower demand from steelmakers is the biggest issue, as steel prices are also falling."
And the downtrend looks intact for now.