SINGAPORE, June 6: Chinese steel futures fell more than 1 percent to near the year’s low on Thursday, reversing gains earlier in the week, as supply continued to outpace demand in the world’s top consumer and pointing to more pressure ahead for prices.
The weakness in the steel market has similarly pressured raw material iron ore, with prices down about a fifth this year, underlining the impact on commodities of a tepid economic recovery in China.
‘I think the worst has yet to come for the steel sector,’ said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.
‘There needs to be production cuts in China, otherwise we’ll see prices test new lows.’
China’s daily crude steel output has stayed above 2 million tonnes since mid-February, hitting a record 2.193 million tonnes in early May, based on industry estimates. That has helped deflate steel prices since demand is slow, while producers have shied away from cutting output mainly to keep their market share.
The most briskly traded rebar contract for October delivery on the Shanghai Futures Exchange hit a session trough of 3,422 yuan ($560) a tonne.
That was just off the year’s low of 3,411 yuan which was reached last week and was the weakest since September. Rebar, a steel product used in construction, has lost about 16 percent of its value this year.
Baoshan Iron and Steel, China’s biggest listed steelmaker, said on Tuesday it expects domestic steel consumption to remain weak through the third quarter ‘which will force mills to be more rational in their production plans’.
Iron ore swaps fell on the back of rebar’s losses, extending steep declines from Wednesday.
The June contract dropped to around $114 a tonne after settling at $115.25 in the session before, while the July contract slid to $110.75 from $112.33, dealers said. Both contracts, cleared by Singapore Exchange, lost more than $3 on Wednesday.
Iron ore with 62 percent iron content, the industry benchmark, was unchanged at $116.60 a tonne on Wednesday, after rising more than 4 percent the prior day, according to data provider Steel Index.
Tuesday’s price surge, the most in a day since last October, came after some mills restocked ahead of the June 10-12 Dragon Boat Festival holiday in China, although the buying momentum may have been short-lived.
‘A lot of traders who have port cargoes have not offered those cargoes yet hoping the market will rise further. But I don’t see iron ore going beyond $120 at this point,’ said a trader in Shanghai.
(agencies)
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