On Thursday the Northern China benchmark iron ore price dropped 2.8% to $47.90 per dry metric tonne, the lowest since mid-February according to data supplied by The Steel Index. The steelmaking raw material is down 26% over the past month and is now just holding onto double digit gains for the year.
Coking coal also had a torrid month after coming close to triple digits in April, only to fall back to the early $80s by the end of May and wiping out all of 2016’s gains. Steel prices underperformed iron ore in May, cutting further into margins at Chinese blast furnaces which had brought 50m tonnes of capacity back online.
The outlook for Chinese iron ore and steel demand was also crimped by a disappointing reading of Chinese manufacturing activity indicating Beijing’s economic stimulus program is already running out of steam.
After a strong first quarter, the Caixin manufacturing purchasing managers’ index (PMI) for May fell back for the second month in a row to 49.2. While the reading was only marginally lower than April, base metal bulls were hoping for a continued recovery.
A reading below 50 indicates weakening operating conditions and the index has now been stuck below neutral territory for fifteen months straight. May’s reading was hurt by a drop in new orders and export contracts, pricing and most worryingly the rate of factory job losses in May were close to a post-global financial crisis record.
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