Iron ore price tumbles to lowest in six weeks on China demand concerns

China’s housing slump is now in its third year, weighing on the world’s second-largest economy and exacerbating a liquidity crunch among developers. Policymakers are trying to revive sentiment among homebuyers who are worried about falling prices and unfinished apartments.

The value of new-home sales from the 100 biggest real estate companies dropped 34% from a year earlier to 322.4 billion yuan ($44.5 billion) in May. While that was less than the 45% decline in April, it shows the magnitude of the challenge facing the country’s government.

“Housing starts and new construction will remain weak” because of a policy shift toward destocking inventory, said Hui Shan, chief China economist at Goldman Sachs Group Inc. “Our property team expects housing starts to decline 15% this year,” she said, while iron ore prices are likely to drop to $100 a ton in the fourth quarter.

Underscoring the ample supply, iron ore inventories at Chinese ports are the highest in more than two years. Meanwhile, the upward momentum in prices of steel reinforcement bar — a product used in construction — is slowing.

“Our view is iron ore prices will swing downwards in June,” said Ying Wei, an analyst at China Industrial Futures Ltd. “Steel fundamentals have turned weaker, off-season pressure to reduce inventory has increased and production cuts may occur.”

Iron ore futures in Singapore fell as much as 4.4% to $110.40 a ton, the lowest since April 17, before trading at $110.50 by 3:57 p.m. Prices in Dalian dropped 2.5%, while steel contracts retreated in Shanghai.