Miners suffer after iron ore slump continues

In the midst of a mining slump, China steps up efforts to limit steel production

The world’s leading mining companies continued to take a beating on Monday as investors and traders reeled from iron ore’s worst week since 2008. 

The mineral, a key element in the production of steel, has suffered after Chinese authorities stepped up their efforts to control the nation’s substantial steel industry. 

The sector enjoyed a substantial boom earlier in the year following the lifting of COVID-19 restrictions. This, coupled with the front-loading of volumes by steel mills fearful of impending curbs, propelled Benchmark Australia ore with 62% ore content that was shipped to China to reach an all-time high of $230 per tonne in May. 

Chinese restrictions

Shortly after this record high, China’s National Development and Reform Commission issued new guidelines to “address unusual fluctuations in commodity prices” and to “strengthen price control for goods important for people’s livelihoods”.

With Beijing also aiming to make China carbon-neutral by 2060, steel output for 2021 was to be limited to just over one billion tonnes.

Although production steadily declined in the following months, falling to a 17-month low in August, the target was still set to be exceeded. 

Iron ore slumped by more than 22% last week, falling below $100 per tonne after authorities ordered manufacturers in the provinces of Zhejiang and Jiangsu to limit operations. 

China–Australia tensions

The Chinese push to limit steel production can also be seen as one factor in the ongoing diplomatic struggle between China and Australia.

China, which is the largest importer of iron ore, and Australia, the largest producer of the mineral, have been engaged in a trade war for over a year, with import limits imposed and tariffs levied across the economic spectrum. 

Last week, Canberra hardened its stance against Beijing by joining AUKUS – the newly formed trilateral security partnership between the US, the UK and Australia. The pact was agreed to help Australia to build nuclear-powered submarines and increase a Western military presence in the region. 

Although none of the three nations specifically mentioned China, the group is widely thought to be a deliberate attempt to counter Chinese ambitions in the South China Sea. Indeed, a spokesman for the Chinese foreign ministry condemned the pact as “extremely irresponsible”. 

Miners’ miseries

With iron ore continuing to fall on Monday, leading mining companies continued to follow suit. 

Among the Australia-listed firms, Fortescue Metals closed down by 3.7% at AUD14.70 ($10.65), down by 40% since the start of August. 

Among the London-listed firms, by early afternoon (UTC) trading on the London Stock Exchange, BHP Group shares were 4.4% lower at 1,792p, down 20% since the start of the month. Rio Tinto slumped by 5.1% to 4,582p, down by 25% since the start of August.

Anglo American traded down by almost 6% at 2,415p, down 22% over the past week, while Glencore traded down at 308p, down 9% in the past week.

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