Chinese iron ore futures slumped 4 percent to hit their downside limit on Wednesday amid growing concerns that tougher environmental checks would hit steel production and dent demand for the raw material in the world’s top consumer.
Chinese steel mills, already struggling with chronic overcapacity and slower demand growth as the world’s No. 2 economy loses momentum, are faced with rising environmental compliance costs as Beijing aims to improve air quality.
Spot iron ore is at its lowest since pricing records began in 2008 amid a global glut, forcing Fortescue Metals Group Ltd, the world’s fourth-largest iron ore miner, to pull a $2.5 billion high-yield bond issue.
Iron ore for September delivery on the Dalian Commodity Exchange hit a low of 439 yuan ($70) a tonne, the lowest for a most-traded contract since the bourse launched it in October 2013. It was down 3.5 percent at 439 yuan per tonne by 0319 GMT.
On the Singapore Exchange, the April iron ore contract slid almost 3 percent to $55.38 a tonne.
“Investors are worried that the new environmental checks targeting air pollution would deal a hefty blow to iron ore,” said Li Wenjing, an analyst at Industrial Futures in Shanghai.
China’s environment ministry is doing a new round of inspections in the Beijing-Tianjin-Hebei Metropolis Circle as the government steps up efforts to fight air pollution which has led to public discontent, according to state-owned Xinhua News Agency.
Stricter environmental standards and overcapacity have already forced a Chinese state-owned steelmaker to plan the closure of most of its facilities and lay off workers later this month, fuelling concerns that more mills could shut down this year.
Earlier this month, some steel mills in Shandong province were ordered to close by local authorities for failing to meet environmental standards.
Benchmark 62 percent grade iron ore for immediate delivery to China’s Tianjin port .IO62-CNI=SI fell 0.9 percent to $57.60 a tonne on Tuesday, according to The Steel Index. The commodity has lost 19 percent so far this year after sliding 47 percent in 2014.
A 170,000-tonne cargo of 62-percent grade Australian iron ore fines for May delivery was sold at $56.50 a tonne on Tuesday, traders said.