Bearish demand expectations challenge iron ore's price resilience

investing.com:

By Amy Lv and Tony Munroe

BEIJING/SINGAPORE (Reuters) — Iron ore prices, long resilient despite China's gloomy economic outlook, have tumbled since the end of the Lunar New Year holiday, sparking concerns around faltering demand and denting mining stocks in top producer Australia.

Prices have fallen by nearly 8% since China, the world's biggest consumer of the key steelmaking ingredient, returned to work on Feb. 19, pressuring Australian mining stocks to four-month lows on Tuesday.

Even Beijing's biggest-ever cut in the benchmark mortgage rate to revive the ailing property market failed to support prices, which typically get a boost from such stimulus.

The declining prices aren't necessarily bringing much relief to steelmakers, either, as many of them are still using stocks bought at higher prices even as steel prices have dropped.

China is by far the world's top steel producer.

«Mills depending more on seaborne cargoes may suffer deeper losses because of higher production costs as the cargoes they consume were bought when prices hovered higher,» said a central China-based steelmaker.

Ore prices had risen following the Lunar New Year holiday last year, and ended the year stronger despite weak Chinese steel demand, defying market expectations.

However, China instructing heavily indebted local governments to delay or halt some state-funded infrastructure projects has cast a fresh shadow on demand, on top of the persistent drag from the property sector.

Many mills chose to draw down inventories instead of placing new orders from the portside market as ore prices fell, according to two Chinese steelmakers and three traders.

«This year might be even harder than last year in terms of garnering profit. We will continue to