Iron-ore sank to a fresh 18-month low as debt troubles in China’s real-estate market deal blow after blow to prospects for steel demand.

The steelmaking material is suffering amid prolonged turbulence in China’s property sector that’s subduing construction activity. Fears over the real estate market deepened this week amid a bond rout, and another round of liquidity pressures for embattled developer China Evergrande Group.

“The property sector is facing weak sales and tighter funding, so there isn’t much incentive to ramp up construction work,” Ban Peng, an analyst at Maike Futures said by phone. “If steelmakers start restocking for the winter season, iron ore prices could maybe recover, but we are lacking a fundamental driver for a big rebound.”

The recent rout marks a big turnaround for ferrous markets after first-half demand was supercharged by the climax of China’s pandemic-era stimulus measures. Now, Beijing’s deleveraging drive in property and a wider economic slowdown are pummeling sentiment. Iron ore is down by about two thirds from its record high in May.

The steel supply-chain is showing plenty signs of slackness. Output from major Chinese mills shrank nearly 20% toward the end of October. Iron ore inventories are at their highest since April 2019, and mill margins are under pressure as steel prices slide. Futures for rebar -- a key product used in construction -- are at their lowest since last year.

HOW FAR?
There’s uncertainty over how long Beijing’s stress-test of the property market will last, and how far policy-makers will go to rein in a sector that’s been a vital engine of China’s economic growth. Goldman Sachs Group says the government’s tolerance for short-term economic pain is much higher than before.

“Without any policy stimulus, the consumption outlook of construction materials remains gloomy going forward,” Huatai Futures wrote in an emailed note. Steel consumption has dropped significantly amid weaker sentiment and colder weather, it said.

In real estate, investors are waiting to see if Evergrande can meet its biggest payment test yet with $148.1-million of coupon payments due Wednesday. Meanwhile, shares of another beleaugured developer Fantasia Holdings Group plunged as much as 52% in Hong Kong.

Iron ore futures in Singapore fell 4.2% to $87 a ton by 2:00 p.m local time. Futures in Dalian dropped 5.2%, while rebar was down 1.9% in Shanghai and hot-rolled coil dropped 2.9%