Iron Ore Prices Plummet Amid China Demand Slump and Sino-U.S. Trade Tensions

The iron ore market faced significant headwinds in May 2025, with prices sliding below the $100-per-ton threshold amid fears of weakening Chinese demand and escalating Sino-U.S. trade tensions. Analysts warn that structural challenges in China’s steel sector, coupled with geopolitical risks, could prolong the downturn.

Price Decline and Market Dynamics

By early May, the Singapore Exchange’s June iron ore contract fell to $97.15 per ton—a 1.19% drop from the previous session—while China’s Dalian Commodity Exchange recorded a 2.17% decline to 697.5 yuan. Technical indicators highlighted bearish momentum, with prices testing critical support levels near $95.40. A reveals how miners’ equities have mirrored these price pressures, with Rio Tinto down 6.75% and Vale down 4.17% in Q1 2025 exports.

China’s Demand Dilemma: Steel Cuts and Margin Pressures

The crux of the decline lies in China’s efforts to restructure its steel industry. Government-mandated production cuts, first announced in March .

• Production Constraints: Blast furnace utilization rates stabilized at 82.3%, reflecting cautious output as steel mills shifted to just-in-time purchasing to avoid overstocking. Port iron ore inventories edged down 1.4% to 138 million tons, but regional disparities emerged: eastern ports faced tight supplies due to infrastructure projects, while southern regions grappled with oversupply.

• Profit Margins Under Siege: Steel production rose slightly between April 25–30, but profit margins narrowed. Steelhome reported port iron ore stocks increasing 2.24% to 136.8 million tons by April 30, underscoring the imbalance between supply and weak demand.

• Property Sector Collapse: China’s real estate investment fell 10.1% year-on-year in the first nine months of 2024, with new construction starts down 22.2%. This sector, traditionally the largest consumer of steel, continues to drag on demand.

Sino-U.S. Trade Tensions: A Double-Edged Sword

The U.S. imposed 145% tariffs on Chinese goods in late 2024, severely limiting steel exports. While China exported over 10 million tons in March 2025, traders fear further restrictions could cripple overseas demand. Upcoming Sino-U.S. trade talks in Switzerland offer hope, but skepticism prevails.

• Monetary Stimulus and Its Limits: China’s May 1 interest rate cuts and liquidity injections briefly boosted prices to a two-week high (Dalian’s September contract hit 708 yuan/ton), but gains faded as trade risks resurfaced. A would show whether monetary easing is translating into real economic activity.

Industry Forecasts and Technical Outlook

Analysts remain cautious. UBS projects 2025 iron ore prices to average $100/ton, with support at $85/ton, while Trading Economics forecasts $96.22/ton by quarter-end.

• Producer Challenges: Major miners like Rio Tinto and Vale have disciplined output to avoid oversupply, but their stock performances () highlight the sector’s vulnerability to macroeconomic headwinds.

• Seasonal Pressures: Northern China’s construction activity typically declines 7–9% between May and July, adding further downward pressure.

Conclusion: Structural Risks Cloud the Outlook

The May 2025 slump in iron ore prices reflects intertwined structural and geopolitical challenges. China’s steel sector faces a perfect storm of margin pressure, production cuts, and a collapsing property market, while Sino-U.S. trade tensions amplify uncertainty.

Key data points underscore the risks:
- Demand: China’s real estate investment decline of 10.1% and steel mill profit margin contraction signal weak domestic demand.
- Supply: Port iron ore stocks near 138 million tons and disciplined mining output suggest oversupply risks are manageable, but not resolved.
- Policy: China’s stimulus measures have been insufficient to offset trade barriers, leaving prices vulnerable below $95/ton.

UBS’s $85/ton support level looms as a critical test, with longer-term forecasts suggesting prices could fall further to $80/ton amid structural overcapacity. Investors should brace for volatility ahead of China’s infrastructure policy announcements and Sino-U.S. trade outcomes. Without meaningful demand recovery or tariff relief, the iron ore market faces a prolonged downturn.