Iron ore futures end 2021 down 12% thanks to China

China's benchmark iron ore futures declined for the first time in three years as prices hit record highs and then nearly halved amid Beijing's stringent production restrictions to meet its climate change targets.
The most actively traded iron ore futures contract on the Dalian Mercantile Exchange for May delivery ended 0.9% higher at 680 yuan ($ 106.71) a tonne on Friday after falling 12% in 2021.
After nearly quadrupling in 2019 and more than tripling in 2020, prices for the key ingredient rose to a record 1,239 yuan per tonne on May 12, boosted by strong demand in the steel industry.
This worried the authorities, as China relies on imports for more than 80% of its iron ore, mainly from Australia and Brazil.
To improve its iron ore pricing ability, China amended the rules for trading on exchanges, encouraged the supply of more scrap steel, increased domestic production, and explored overseas assets.
But prices did not begin to fall until the second half of the year, when the government ordered production cuts in steel mills to cut carbon and other pollutant emissions from the steel industry.
Iron ore imports to China fell 9.6% from June to November from the same period a year earlier. Product prices on the Dalian Stock Exchange fell 42% over the months.
Other raw materials
Dalian coking coal and coke futures have posted double-digit annual growth this year, despite declining from record highs earlier this year.
In addition to weaker demand for downstream processing, commodity prices were also under pressure from widespread power shortages from September to October and government intervention to address the issue.
Meanwhile, the continued restrictions on coal imports from Australia and the volatile pandemic in Mongolia have made the metallurgical coal supply unstable.
Coking coal futures were up 1.6% to RMB 2,229 a tonne at the close of trading on Friday, bringing them up over 60% year-on-year.
Coke prices were RMB 2934 per tonne at the end of the period and are up about 23% in 2021.
Steel Price Forecast
China has pledged to keep steel production below a record 1.065 billion tonnes last year, which was not possible in the sector amid a construction boom and manufacturing mania. This helped support steel prices during the first three quarters of 2021.
However, the unexpected debt crisis of real estate companies spilled over to the iron and steel sector in the last quarter, raising fears about future demand if China tries to move away from stimulating construction.
Steel rebar futures for the construction sector on the Shanghai Futures Exchange fell 0.1% to 4,315 yuan a tonne on Friday, but is up 4.8% this year.
Hot rolled coil used in automobiles and home appliances ended at RMB 4,411 per tonne. In 2021, they added 7%.
Shanghai stainless steel futures are up slightly 0.4% to 17,125 yuan a tonne at market close and are up more than 50% this year, helped by raw nickel prices.
China's financial markets will be closed on January 3 for the New Year holidays. Markets will resume trading on January 4th.