SINGAPORE, July 31: Spot iron ore prices pulled further away from three-month highs reached last week as Chinese steel mills slowed buying of the raw material on expectations of softer steel demand for the rest of the year.
Shanghai steel futures dropped to their lowest in three weeks on Wednesday after an industry group warned appetite would remain weak in the second half.
But both iron ore and steel are on track for their best monthly performances in at least six months, helped by an earlier restocking binge.
Growth in steel supply is outpacing demand in China, the world’s top consumer, the China Iron and Steel Association said. The group’s 86-member steel producers made a combined loss of 669 million yuan ($109 million), marking the first aggregate loss this year.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange hit a session low of 3,613 yuan a tonne, its weakest since July 10. It closed up 0.1 percent at 3,644 yuan.
‘Even after the seasonal weakness in summer, I don’t think the steel market will be able to recover strongly for the rest of this year,’ said an iron ore trader in China’s eastern Shandong province, citing tighter credit and persistent overcapacity in the sector.
China’s cabinet said this month it would cut off credit to force consolidation in industries plagued with excess capacity.
Steel consumption in China tends to cool when construction projects slow during summer. But a spurt in steel prices in July as traders and end-users restocked pushed up Shanghai rebar futures nearly 4 percent for the month, their biggest gain since January.
Ore with 62 percent iron content dropped 0.6 percent to $130.90 a tonne on Tuesday, its lowest since July 17, based on data from compiler Steel Index.
Iron ore is up 12.4 percent so far in July, its sharpest gain since December 2012, having risen to a near three-month high of $132.60 on Friday.
‘We will probably see prices come off by around $5 more if the weakness in steel continues,’ said the Shandong-based trader, who has been buying cheaper cargoes from Southeast Asia.
(AGENCIES)
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