Everyone knew this was going to be a difficult year in the iron ore market.
Expansions by existing producers such as Rio Tinto and BHP Billiton and ramp-ups by newer players in Australia and West Africa were widely expected to generate a wall of supply in the sea-borne market.
The timing was always going to be problematic, given the equally widely expected slowdown in China, the world's biggest buyer of iron ore.
The combination of supply surge and slowing demand growth has already unleashed a battle for survival among iron ore producers. The latest victim of this brutal new iron age is fledgling Australian producer, Western Desert Resources, which has just gone into administration.
But at least Chinese steel production has been growing, even if the rate of growth has braked sharply to 2.7 percent in the first seven months of 2014 from 12.1 percent in the year-earlier period.
However, it is getting harder to ignore the building pressures in the Chinese steel sector and the rising risk of some sort of demand shock along the raw materials chain.
The surest sign of tension in China's massive steel market is the steady decline in domestic prices.
On the Shanghai Futures Exchange, the most active steel rebar contract slumped to another record low last week, extending a price decline that has run uninterrupted since the beginning of August.
The exchange's hot rolled coil futures contract has fared no better, also closing the week at its lowest level since it was launched in April this year.
The two Shanghai steel contracts have tracked each other closely since April, but as the graphic below shows, rebar has fared significantly worse.
That's a clue as to what lies behind this accumulating price implosion, since rebar is the form of steel most widely used in construction.
Property sales and new starts have both been falling across China with no end in sight to the downturn.
Local governments have been quietly easing previous restrictions on property purchases and the central government continues to drive investment into affordable housing, but neither is sufficient to offset the profound malaise in China's previously white-hot construction sector.
The fact that hot rolled coil prices are also falling, even if not as fast, suggests that steel demand weakness is spreading into the broader manufacturing sector.
That chimes with the latest purchasing managers indices. Both official and unofficial surveys for August painted a worrying picture of deceleration in the engine-room of global manufacturing.
Given such a dismal backdrop it is surprising that Chinese steel output has been rising at all.
But then this is an industry defined by its ability to survive on the thinnest of profit margins and right now those margins are positive because the prices of steel inputs, namely iron ore and coking coal, have been falling faster than steel product prices.
This naturally leads to something of a vicious pricing circle with Chinese steel mills incentivised to keep iron ore purchases to a bare minimum to prevent any rebound and consequent impact on margins.
Yet by overproducing relative to actual steel demand, they are collectively preventing any recovery in their own product pricing.
The only reason why things aren't even worse is that China's steel producers have an important safety valve in the form of exports.
Flows of steel products out of China have undergone a step-change since the start of this year.
Exports have increased by 35 percent so far this year with net exports jumping by 44 percent. In tonnage terms, China has shipped an extra 14.9 million tonnes so far this year, almost matching output in Italy over the same period.
Looked at positively, this is an indication of strong demand everywhere else, particularly the developed world and most particularly the United States, where industrial activity is going from strength to strength.
But there are limits to how much the rest of the world is prepared to buy from China.
A protectionist reaction is taking an ever more concrete form, witness last week's imposition of preliminary anti-dumping duties on Chinese wire rod and a recently launched investigation by the European Commission into stainless steel dumping by China and Taiwan.
The export safety valve, in other words, does not have limitless capacity.
Steady As She Goes?
This means that, sooner or later, Chinese steel mills are going to have to adjust their output to match domestic demand.
Well-documented clampdowns on older, polluting steel production capacity in provinces such as Hebei are playing their part. Output in what is China's top steel-producing province and also the frontline in Beijing's "war on pollution" fell by 6 percent in July.
But such is the excess capacity hanging over the sector and such the tenacity to survive, often abetted by local governments, that overproduction and resulting steel price weakness seem hardwired into the system.
That's going to keep the iron ore price under pressure, given mills' understandable desire to maintain what little operating profit they can eke out of the current pricing structure.
The only way Chinese steel prices are going to experience any sustained recovery is if output is collectively curtailed more aggressively. But then that wouldn't exactly be good for the iron ore price either.
The consensus iron ore narrative of lower-cost production smoothly displacing higher-cost production is predicated on a business-as-usual-but-just-a-bit-slower view of Chinese steel demand.
It's a view that is looking ever more shaky the lower Shanghai steel prices fall.
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