Reports Beijing will suspend production during summit comes at a tricky moment
Iron ore traders are likely to closely monitor the G20 summit in the Chinese city of Hangzhou next month, but not to hear the economic prognostications of world leaders.
Instead they will be studying the impact on the market for iron ore, a key ingredient in steel, of reported government orders to shut down polluting steel factories in surrounding areas and provinces, as Beijing tries to ensure clear skies ahead of the event on September 4-5.
The price of iron ore, a big source of profits for global mining houses such as BHP Billiton and Rio Tinto, has rallied about 40 per cent this year, making it one of the best performing commodities. But analysts are now warning that a weakening in steel demand in the second half of this year could halt its advance.
The G20 summit could see steel output reduced by 3.3m tonnes, analysts at Morgan Stanley estimated. While a small amount of China’s total, it could still undermine prices and prompt large moves on the country’s heavily traded futures market.
“Given that China’s construction activity eases over September to October, this event may act as a catalyst for a sell-off,” they said. China’s credit surge this year has triggered a speculative trading frenzy in iron ore and steel futures, which have made it harder for the government to cut excess steel capacity.
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