Sluggish demand for steel in Asia will slow the pace of recovery in iron ore prices

As the downturn in the Chinese property market and the resumption of the pandemic wipe out hopes for a recovery in demand, iron ore prices in Asia will continue to decline in the fourth quarter as cuts in steel production intensify into the winter season.

China's real estate sector was turbulent last quarter, with loan defaults by buyers and developers becoming commonplace, slowing private housing construction in the country.

The country's stringent pandemic restrictions aimed at eradicating every outbreak of COVID-19 have only exacerbated the problems in the iron ore market as construction work has taken its toll.

The 62% iron ore index, or IODEX, fell another 25.17% in the third quarter to close at $95.95/dmt CFR China on September 30. The index fell 24.87% and 64.99% compared to the second and first quarters, respectively.

Going forward, cuts in steel production in China this winter due to environmental restrictions are likely to keep the iron ore market under constant pressure.

Weak mill margins change purchasing preferences
As the mill's margins were losing money for much of the quarter, demand for discounted low-grade and mid-grade fines soared as mills prioritized profitability.

BHP sold 32 lots of Jimblebar Fines (JMBF) in the third quarter, compared with 24 and 22 lots in the second and first quarters, respectively, according to S&P Global Commodity Insights.

The miners' propensity to sell at a fixed price was evident when the cargo was offered at a discount amid low demand for factories.

S&P Global data showed that 77.5% of Rio Tinto's flagship Pilbara Fine Blend (PBF) was sold at a fixed price.

Sustained demand for medium-quality Australian fines saw the spread between IODEX and MACF and IODEX and JMBF narrow the most in the third quarter to $5.15/dmt and $8.1/dmt, S&P data showed. Global.