The price of iron ore has declined to a 30-month low due to Chinese steel mills trying to offload existing stock before buying afresh and advancing by a month the maintenance shutdown to reduce losses on steel production.

Data compiled by Bloomberg showed while the benchmark iron ore with 63 per cent of iron content hit a low of USD 118.1 a tonne, the 62 grade also fell to USD 115.2 a tonne. These levels were previously seen in December 2009. The dip in demand from China, the world’s largest steel producer, indicates the ongoing economic downturn in America and the European Union has gradually begun percolating to Asian countries, including China and India. Consequently, it has lowered the economic growth forecast for China and India to 7.5 to 8% and 6.5% from over 10% and 8% earlier, respectively.

Growth in an economy is closely linked with consumption of steel, due to the metal’s abundant use in creating and maintaining infrastructure. Mr RK Sharma secretary general of the Federation of Indian Mineral Industries said that “There is no activity on the ground. Chinese demand remained totally absent.”

The price slump of iron ore in international markets will reduce India's role as a key exporter in Asian markets. Iron ore exports from all major ports declined by a third in the first quarter of the current financial year to 12.9 million tonnes.

Inventories of both iron ore and various steel products in China have swollen by up to 46 per cent so far this year to 100 million tonnes and 12.45 mt, respectively, counting major factories and ports. To avoid further restocking, the Chinese government has urged state-owned steel companies to make destocking a priority in the second half of the year. Consequently, steel mills are abstaining from fresh buying.

Also, Chinese small and medium sized steelmakers accounting for about half of the country’s 550 million tonnes of annual steel output are stepping up maintenance, in an effort to cut production and stem losses from a slump in steel prices and a surge in inventories.
There is no recovery in demand for steel in sight and,hence, a large number of mills in China have begun idling some capacity, after having held output near record levels over recent months. An estimate says about a million tonnes of crude steel output will be cut by some time in August, on the basis of a schedule of mills' plans for maintenance.