Steel mills in China, the world’s top steel producer, are deferring shipments of iron ore as profits are squeezed by overcapacity, Beijing’s fresh measures to cool the economy and a global economic slowdown according to this article by Stuff Inc.

“Everybody is horrified…They can barely cover the costs,” said a senior iron ore trader at a major Chinese trading house. “They are trying to arrange (iron ore) shipments for later months. The situation is really bad. Prices for international market are not very good either. It’s terrible.”

Mittal Steel Co, the world biggest steel maker, said in May that consumption in the United States was suffering from an inventory overhang. The recent deferrals come as spot iron ore orders from China have been at a virtual standstill since April. The dearth of orders has led to a slump in Indian ore prices and international dry-bulk freight rates, which hit an all-time high in December.

Spot Indian iron ore prices – which are seen as the barometer for China’s steel sector – fell to below $US70 a tonne, including cost and freight, from about $US95 early in April, iron ore traders said.

Another iron ore trader based in northwest of China said: “What we really want to know is when it (the iron ore price) will stop falling, where is the floor? If we knew when it would stabilise we could at least make plans.”

In May alone Chinese prices for hot-rolled coil fell 1500 to 2000 yuan ($NZ256 – $NZ343) per tonne to below 4000 yuan per tonne, the Beijing trader added. The slowdown has pushed freight rates from Brazil to China down to $US20 a tonne, half the first quarter level, shipping officials said. Some of the world’s top steel makers, including Arcelor and ThyssenKrupp, have already announced production cuts to counter a downward price trend.

With steel prices for 2005 term contracts rising 71.5 per cent back in April is there any wonder there would be plenty of supply, especially with the economy slowing? China was silly to lock in at those prices. Was that so hard to see? Let’s take a look at the April forecast: Steel Prices to Plunge. It now appears that buyers locked in prices right at the peak of the market.

Now what? Hmmm let’s see.
Housing stalled in the UK and OZ, SUVs are piling up everywhere, China has acted to curb its housing bubble, and the US housing market will eventually break as well. Where is steel going?

Mike Shedlock / Mish/