Supply-demand fundamentals for iron ore appear to be moving back to balance amid steel supply concerns and after Chinese stock market regulators announced more steps to discourage speculative trading in the steelmaking commodity.

Both steel and iron ore prices slumped on Friday, with iron ore ended the day 5.2% lower at $55.68 per tonne, and steel rebar and hot rolled coil down a respected 4.6% and 4%. Iron ore futures on the Dalian and Shanghai exchanges was down 13% for the week, and hot rolled coil fell 12%, bringing losses since April 21 to around 25%.

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Credit: http://financialtribune.com/

The two commodities have been hotly traded since the start of the year, with speculative trading fueled by Chinese steel mills increasing their output and expectation that the Chinese government will stimulate the economy, including the housing and infrastructure industries, which would require higher amounts of steel.

Mid-April iron ore hit a 16-month high of $68.70 after a double digit jump over just two trading days amid frenzied dealings in futures on the Dalian Commodities Exchange. However on Monday, news reports coming out of China reversed expectations of a sustained stimulus package, leading to widespread selling.  On Tuesday, the most active DCE contracts settled 4.7% lower at 384.50 yuan or $59.10 a tonne.

“The message from Beijing early this week suggests a slimmer chance of further easing, which hurt sentiment and triggered panic selling in steel-related commodities,” the Wall Street Journal quoted Wang Ying, an analyst at CCB Futures.

The newspaper also noted a BMI Research report that says low steel prices caused by an oversupplied market will make it tough for Chinese steel producer to remain profitable. The subsequent lesser demand for iron ore will push prices lower, says the report.

Source; http://www.mining.com/iron-ore-keeps-dropping/