The seaborne iron ore price has experienced its largest one month drop in almost eight years as shipments increased to China, sparking supply pressure.
S&P Global Platts reported that iron ore lump premiums have plummeted 74 per cent over the past two months as steel mills reduced the usage of lump in response to thin steel margins.
Chinese steel-markers are instead turning to domestic ores and imported fines in the blending process.
This coincides with global trade tension as US President Donald Trump threatened to introduce a tariff on Chinese goods.
The price of the commodity has dropped from $US110.65 ($163.62) at the end of July to $US84.64 by the end of August, according to Market Index, as Australian mining companies ramped up lump shipments to China throughout July.
The sharp decline, which follows a period of prosperity for the iron ore price, highlights what BHP described in an August economic and commodity outlook as “considerable volatility in pricing”.
It attributed this to the normalisation process of global iron ore supply as Brazilian exports recover from the Brumadinho tailings dam tragedy.
BHP had also indicated it expects ore stocks at Chinese ports may fall further in the second half of this calendar year.
This would compound what has already been a “spectacular degree of decline” as described by BHP, with stocking falling from 142 million tonnes at the end of 2018 to just below 120 million tonnes in late July this year.
A growing Chinese trend to move towards larger furnaces and a crackdown on environmental policy has BHP expecting a spike in demand for high quality seaborne iron ore fines and materials, such as lump in the medium to long-term.