By Paul Ploumis (ScrapMonster Author)

December 07, 2015 07:43:51 AM

SEATTLE (Scrap Monster): Iron ore prices dropped below $40 per tonne levels. The benchmark iron ore prices for immediate delivery to Chinese Tianjin port traded at $39.40 per tonne, falling almost 2.3% from the previous close.

The prices are currently at 10-year lows. The commodity has lost over 25% during the past two months. The prices have declined by nearly 44% since the start of the year. Since October 12, the prices have declined by almost 30%. Having fallen below the psychological support level of USD 40 per tonne, analysts expect further weakness in prices. According to ANZ, downside risks for the commodity remains strong. The prices will remain depressed heading into 2016, as it sees no major triggers during this month which could boost the prices.

The primary factor that has led to sharp drop in iron ore prices is the reduced intake by the Chinese steelmaking sector. As per CISA data, the Chinese crude steel production fell 3.1% on the year to 66.12 million tonnes in October. Over the ten months of 2015, crude steel output by the country has declined by 2.2% to 675 million tonnes. There has been a notable decline in steel consumption by China, thereby leading to extremely high inventory levels. Consequent to lower demand, the mills are likely to announce production cuts during 2016.

According to Fitch Ratings, iron ore prices are unlikely to recover in the upcoming years, on the back of new supplies coming online during 2016 and 2017. The agency forecasts prices to average around $50 per ton through 2015 and 2016. It anticipates more than 145 million metric tons of new supply to be brought online in the coming years.