Iron Ore Prices Plunge as China's Steel Output Cut Looms

The iron ore market is on edge as China, the world's largest consumer of the commodity, continues to implement measures to cut steel output. The recent plunge in iron ore prices may be just the start of what could be a sustained decline for the rest of the year, as demand from the world’s biggest consumer is widely expected to further drop under an increasingly strict government campaign to cut steel output to meet environmental and other goals. This is not just a blip on the radar; it's a seismic shift that could have serious global implications, especially for countries like Australia that rely heavily on Chinese imports.



The property sector, which accounts for about 40% of demand for iron ore, has been in crisis. Despite various property support measures, including interest rate cuts and targeted support, these have failed to provide any meaningful impact on metals demand. China’s new home starts, the biggest steel demand driver, have continued to fall, now down more than 20% year-to-date. This trend is expected to continue suppressing steel demand in 2025. The country's recent stimulus policies have focused on clearing property inventories rather than boosting new starts, which limits the impact on steel demand as it requires new construction rather than clearing unsold stock.

The economic slowdown in China has led to a subdued domestic market, spurring exports. China's steel exports have hit their highest level since 2016, with volumes up more than 20% so far this year. However, this increase in exports is likely to slow down moving forward, with more countries globally imposing restrictions or conducting anti-dumping investigations against Chinese steel products. This would prove a further drag on iron ore demand.

The continued weakness in the property sector in China remains the main downside risk to the outlook for iron ore. The market will remain sensitive to Chinese policies, and prices are likely to remain volatile until there are signs of a sustainable recovery and economic growth in China. For example, the China International Capital Corp (CICC) warned that as China’s domestic steel production is set to ease, iron ore prices will likely drop to below $200 per ton. They expect that the growth speed for China’s steel production will turn negative starting in the third quarter and iron ore prices will also fall from the top.

The recent plunge in iron ore prices may be just the start of what could be a sustained decline for the rest of the year, as demand from the world’s biggest consumer is widely expected to further drop under an increasingly strict government campaign to cut steel output to meet environmental and other goals. This could have serious global implications given China’s massive imports, especially from countries such as Australia.

In conclusion, the recent trends in China's property market and economic slowdown present both opportunities and risks for investors in the iron ore market. The demand for iron ore is expected to remain volatile, and investors should closely monitor Chinese policies and the property market for signs of recovery. The iron ore market is at a crossroads, and the decisions made by China's government in the coming months will have far-reaching consequences for the global economy.