Iron ore has jumped by about 10% in 10 days to breach US$100 a ton, prompting the official journal of China’s metals industry to pen a long article on why the gains are overdone.

The steelmaking material has powered higher in the face of a barrage of downbeat commentary on prospects for Chinese demand - including from top global iron ore miner BHP Group Ltd. The advance is piling pressure on China’s struggling steelmakers, according to state-affiliated China Metallurgical News.

“The current rise in iron ore prices lacks fundamental support,” according to the journal’s column on Wednesday, which called the spike “irrational”. Plentiful supply, weak demand, high inventories and low mining costs should continue to weigh on the commodity in the rest of 2024, it said.

China’s steel sector is battling what its top producer China Baowu Steel Group Corp claimed were worse conditions than earlier crises in 2008 or 2015. Iron ore prices are still down by more than a quarter this year - as construction activity contracts - but a slight tick-up in steel prices in recent weeks has encouraged gains for the raw material.

Industry and government officials in China often issue warnings about over-exuberance in the volatile iron ore market, especially when prices post rapid rallies or notch new highs. Steelmakers across the world’s top-producing nation are struggling to make money as slowing demand spurs fierce competition. 

An executive at Baowu’s listed unit echoed the complaints about the squeeze on the industry. Big miners are making outsized profits and the Chinese steel industry is planning output cuts, Zou Jixin, the chairman of Baoshan Iron & Steel Co, said on a call with investors, after the company reported flat first-half profits.

“We should pass on industry pressure to the upstream sector,” said Zou. “With mills cutting output, that will surely reduce demand for iron ore.”

On Tuesday, BHP said a major transition is underway in China’s steel industry as decades of property-intensive growth come to an end. Still, other sectors including transportation, infrastructure and shipbuilding - as well as overseas sales -  are taking up some of the slack. BHP’s underlying earnings from iron ore in the year through June rose 13%.

The Australian mining behemoth said iron ore has support in a band between US$80 and US$100 a ton, a level at which many high-cost producers in China, India and other areas will have to consider halting output.

“Iron ore is prone to rise but resistant to declines - repeatedly devouring industry profits - and this year the situation is even worse,” the China Metallurgical News said in its commentary, which was also shared on the WeChat account of the China Iron and Steel Association. “Looking back at the market situation in recent years, the above scenario seems to be constantly repeating itself.”

Futures in Singapore on Thursday rose 0.9% to US$101.80 a ton, heading for their highest close since Aug 6. Rebar and hot-rolled coil futures in Shanghai also increased.

  - Bloomberg