Iron Market Update (July 26, 2012)

The price of benchmark iron ore with 62 percent iron content slipped to an eight-month low of $122.90 in Wednesday’s trading. That’s a drop of 10 percent in the last two weeks. Iron ore is now down about a third from the record high it hit in February.

The decline is mainly the result of the slowdown in China, which consumes 60 percent of the world’s iron ore. But there was some positive news on that front this week after an International Monetary Fund (IMF) report said that the country’s economy is in for a “soft landing” following its years of rapid expansion, and that Beijing still has plenty of flexibility to deal with the slowdown.

The IMF lowered its growth forecast for China from 8.25 percent to 8 percent, but that’s still higher than the government’s estimate of 7.5 percent growth.

Still, lower demand has led to a sharp rise in iron ore inventories. By the end of last week, iron ore stocks at Chinese ports stood at 98.52 million tonnes, just shy of February’s record. That prompted some smaller Chinese producers to sell stock at a loss to avoid the extra storage costs.

“Quite a lot of the port inventories have been stuck there for over a year, so the main objective for these smaller traders now is to sell whatever they can to stem further losses,” one Chinese trader told Reuters.