Iron ore below $40 as China's reserves at 7-month high

The surging stockpiles at Chinese ports are pushing iron ore prices below $40 per metric ton. The China's iron ore reserves rose to seven-month high putting more pressure on prices.

China is receiving more supplies via sea route. The oversupply situation coupled with weak consumption is causing price fall. The sluggish situation in the Chinese steel industry is also impacting the iron ore prices.

The slump in Chinese commodities market has taken a toll on the iron ore prices. Iron ore prices tumbled in Chinese markets. This has been further worsened as BHP Billiton Ltd, Rio Tinto Group in Australia and Brazil's Vale have increased their low-cost output.

Quoting Australia & New Zealand Banking Group Ltd, Bloomberg reported that spot ore with 62 percent content slipped 1.8 percent to $40.03 per metric ton. This indicated a record low since 2009 in the data provided by Metal Bulletin Ltd. Spot ore prices kept on losing 10 percent every day during the past one week.

The spot price for benchmark 62 percent fines traded at $40.03. The prices may further fall in five months. The declining demand from Chinese steel industry is causing a price drop.

The global oversupply is further hammering down on iron ore price. The three major producers-- Vale, Rio Tinto, and BHP Billiton-- in addition to Chinese and Japanese steel makers witnessing their annual contract pricing lowest since 2007.

The world's largest producer Brazil's Vale has cut forecast for 10 percent drop in shipments for 2016.However, it added 100 million tons of capacity during the past three years. The oversupply situation is hammering down the iron ore prices.

According to The Steel Index (TSI), which has been tracking the industry since 2008, the iron ore price fell to $39.40, registering a 10-year low level as reported by Mining.com.

The raw materials were trading weaker at $10.51. The major mining companies and steel makers negotiated on annual benchmark contracts in 1988. Since then, iron ore prices slipped to such low level now.

"A strong build in inventories and weak steel markets continued to weigh on the iron ore market. With miners having ample cargo to sell, the prospect of sub-$40 a ton prices this week looks likely," ANZ said in a note published by Washington Post.

According to Shanghai Steelhome Information Technology Co, inventories continued to surge during the seven weeks out of the past eight weeks. Port Holdings, rose 2.1 percent to 89.50 million tons last week.