By Dhirendra Tripathi
Investing.com – ADRs and shares of the world's largest iron ore miners traded weaker Friday on fears of lower offtake by Chinese steel producers.
Worries over the debt problems of real estate developer China Evergrande (OTC:EGRNY) snowballing to hurt the real estate and banking sectors in the world’s second largest economy are also keeping the sentiment for the iron ore stocks subdued.
ADRs of Rio Tinto (NYSE:RIO) and BHP (NYSE:BHP) traded 2%-3% lower. Vale ADR (NYSE:VALE) was down 1.3% while Anglo American (LON:AAL) fell the most, by 4.6%, in London.
China has for some years now resorted to annual steel production cuts at its factories to control emissions and reduce pollution. That exercise has met with limited success while causing great volatility in prices. The country is the world’s biggest consumer of metals as well as farm and non-farm commodities.
The country wants to keep its 2021 crude steel output around last year’s 1.05 billion tons. UBS expects that to be around 1.07 billion tons in 2021-22 and flat in 2022-23. This is around 5% lower than its previous forecast of 1.13 billion tons.
The bank expects the iron ore market to be in surplus this half, and sees iron ore prices averaging $89/t in 2022. Iron ore prices have already more than halved from this year's peak to around $106/t.
To make matters worse for iron ore producers, developments unfolding at Evergrande (HK:3333), China’s second-largest property developer, are also causing anxiety. Evergrande is set to default next weeek on some $300 billion in liabilities, and the poor performance of its own bonds is dragging down others in the sector, making it harder for other developers.to raise money.