Prices of iron ore and other steelmaking raw materials fell in China on Monday amid signs of weaker short-term demand for steel, but hopes of government measures to prop up the economy provided some support.
The most-traded iron ore contract on the Dalian Commodity Exchange, for September 2019, slipped as much as 3.1% to 712 yuan ($103.21) a tonne, the benchmark’s lowest since May 22.
Dalian coke slid as much as 4.1% to 2,093 yuan a tonne, while coking coal lost 2% to 1,370 yuan.
A contraction in sales volume and new orders in May points to a “poor steel demand outlook”, said Helen Lau, metals and mining analyst at Argonaut Securities in Hong Kong.
China’s factory activity shrank more than expected last month, an official survey showed on Friday, heaping pressure on Beijing to roll out more stimulus to support an economy hit by a bruising trade war with the United States.
China’s steel PMI (Purchasing Managers’ Index) slipped to the contraction zone along with China’s official manufacturing PMI,” Lau said. “We expect steel companies’ profitability will quickly deteriorate going forward.”
Benchmark construction steel rebar on the Shanghai Futures Exchange, for delivery in October, fell 1% to 3,731 yuan a tonne.
Demand for rebar is likely to be particularly sluggish with the onset of summer, which is when construction activity usually slows in China, analysts said.
Hot rolled coil, used in cars and home appliances, lost as much as 0.6% to 3,611 yuan a tonne.
“Weaker margins remain our key concern as mills contend with weakening steel prices, whilst raw material prices remain elevated,” said Hui Heng Tan, research analyst at Marex Spectron.
The slowdown in steel rates is likely to drag on demand for iron ore, but some analysts also believe prices of the steelmaking feedstock will remain supported by tightening supply.
Iron ore inventory at Chinese ports fell further last week to the lowest since February 2017 at 124.9 million tonnes SH-TOT-IRONINV, based on the latest data compiled by SteelHome consultancy.
“The likelihood of supply-side issues persisting longer than expected are building in the iron ore market,” commodity strategists at ANZ said in a May 30 note.News Source: REUTERS