China iron ore, steel ease on weaker demand, higher stocks

09 January 2017

Chinese iron ore and steel rebar prices eased again on Wednesday, with rebar hitting a six-week low, amid continued concerns about weak demand and rising stocks.

Falling for a third straight session, iron ore on the Dalian Commodity Exchange settled at 539 yuan ($77.53) per tonne, down 2 percent.

Domestic stocks CUS-STKTOT-IORE remain at 2-1/2-year highs, rising by 90,000 tonnes last week to almost 11 million tonnes.

“The pullback results from the big amount of inventory, whereas the downstream market is not active,” said Liu Xinwei, steel analyst at China Sublime Information Group, pointing to the drop-off in construction activity during winter months.

The most-active rebar contract for May delivery on the Shanghai Futures Exchange dropped 0.75 percent to 2,914 yuan per tonne. Earlier in the session, it fell to 2,827 yuan, its weakest since Nov. 22.

Average metal inventory at steel mills is between 8 and 10 days, significantly better than a month ago when stockpiles could only support one day’s needs, according to China Sublime.

Turnover has been low after the new year holiday and ahead of China’s week-long Lunar New Year holiday at the end of January.

On Wednesday, 2.7 million lots of steel changed hands, the lowest daily volume since mid-December 2015 and just 1.01 million contracts of iron ore traded, the smallest amount since June 2015.

Consumption typically slows during the cold winter months when the construction sector ebbs, but analysts are also worried about a slowdown in the world’s second-largest economy.

A prolonged bout of toxic smog across the north of the country has renewed concerns about slower manufacturing output, forcing hundreds of factories including steel mills to scale down production or close completely.

The government continues its crackdown on outdated capacity in a bid to curb excess output, saying on Tuesday that it would impose higher power prices on mills using outdated equipment.

Source – Reuters