SINGAPORE, May 23: Shanghai steel futures dropped for a third straight day on Thursday, swept up in a broad-based decline in commodities after weak manufacturing data from China darkened the outlook for raw material demand from the key consumer.
The data which showed China’s manufacturing activity contracting for the first time in seven months added to investor concerns that the U.S. Federal Reserve may soon cut back on its monetary stimulus, fuelling price losses in base metals and oil.
‘The PMI data reinforces that the outlook for China’s economy is on the softer side of expectations to put it mildly,’ said Vishnu Varathan, market economist at Mizuho Corporate Bank.
‘As such, commodity demand remains questionable.’
The most actively traded rebar contract for October delivery on the Shanghai Futures Exchange was down 0.3 percent at 3,582 yuan ($580) a tonne by the midday break, after hitting a session low of 3,551 yuan.
The price of rebar, or reinforcing bar which is used in construction, has fallen by nearly a fifth from this year’s peak of 4,382 yuan reached in February.
Steel prices have been pressured by slow demand in the current quarter that is usually the first peak consumption season for the year and excess supply as Chinese mills continued to produce crude steel at a record rate above 2 million tonnes.
‘Going forward, if China’s GDP growth cannot reach above 8 percent, and if output fails to drop in the third quarter, the steel price might not be able to rebound in the fourth quarter, the second peak demand season,’ Macquarie Securities said in a note.
The sustained production has helped support demand for raw material iron ore, although many mills have moved to curb inventories and have even resold some cargoes.
But the slow steel market is prompting buyers to seek deep discounts, traders said, dragging down prices and limiting volumes in the spot iron ore market.
Iron ore with 62 percent iron content <.IO62-CNI=SI> dropped 0.3 percent to $123.20 a tonne on Wednesday, resuming its decline after bouncing off five-month lows in the prior session, according to data provider Steel Index.
Iron ore had fallen for seven straight days before gaining on Tuesday. Shanghai rebar futures and iron ore indexes at 0403 GMT
Contract Last Change Pct Change SHFE REBAR OCT3 3582 -11.00 -0.31 THE STEEL INDEX 62 PCT INDEX 123.2 -0.40 -0.32 METAL BULLETIN INDEX 124.95 +0.00 +0.00
Rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.1311 Chinese yuan) (AGENCIES)
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