Iron ore miners face lackluster demand

Domestic producers' profit margins averaged just 0.9 percent, with collective industry profits of 2.5 billion yuan ($406 million) for the first quarter.

These profits are meager for an industry with total assets worth 4.3 trillion yuan.

The CISA said the profits of medium-scale and large producers are contracting by the month, falling from 1.3 billion yuan in January to 998 million yuan in February. In March, the figure was just 267 million yuan.

Facing weak downstream demand and oversupply, the major steel mills including Baosteel Group, Anshan Iron and Steel Group and Wuhan Iron and Steel Group, have all cut product prices by 100 yuan to 250 yuan per ton for June.

The average price of hot-rolled steel products offered by Baosteel Group fell by 180 yuan a ton, to a new price of 4,572 yuan a ton.

According to Mysteel.com, iron ore inventories at 30 major domestic ports reached about 69.62 million tons in May, 3.08 million tons above the year's low, which was set on March 8.

Meanwhile, steel companies' internal iron ore inventories slid to 2.15 million tons in late May as they liquidated stockpiles.

The weak market pushed down iron ore import prices. The price of 62-percent-grade Australian iron ore, a benchmark in the international iron ore market, dropped 12.5 percent in just one month. It was offered at $123 a ton on May 20, the lowest level in five months.

Iron ore trading has been weak on China's spot iron ore trading platform, with fewer transactions, according to the platform.

Iron ore traders have been active on the platform, with many repeatedly cutting their asking prices. But buyers have been scarce, said the platform.

The iron ore spot trading platform was launched by the China Beijing International Mining Exchange, the CISA and the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters.

Signals from the financial markets and macroeconomy offer little hope as well.

China's first-quarter GDP growth slowed to 7.7 percent, from 7.9 percent in the fourth quarter of 2012, according to the National Bureau of Statistics. In the second quarter, growth slowed further to 7.5 percent, the NBS said Monday.

Figures from the NBS show China produced 11,053 tons of iron ore in April, up 5.7 percent year-on-year, with total output during the first four months up 9.9 percent to 39,801 tons.

China is the world's top iron ore consumer and buyer, and half of its iron ore consumption must be imported.

It imported 740 million tons of iron ore last year, up 8.4 percent, the General Administration of Customs said.

Analysts said China's macroeconomic situation has affected iron ore imports, and iron ore prices will keep falling.

"Iron ore prices will drop around $5 to $10 a ton in the near future," said Zeng Jiesheng, another senior analyst at Mysteel.com. "There is no sign of a rebound of the macroeconomy and it is not likely that incentive policies can be carried out any soon."

He said domestic steel producers will cut production to survive, which will result in continued price declines for iron ore.