Chinese steel futures dropped more than 2 percent to two-month lows on Wednesday, pressured by increased stockpiles after the Golden Week holiday as traders anticipated winter production cuts in Beijing’s fight against smog.
Inventory of rebar, a construction steel product, among Chinese traders rose by more than 250,000 tonnes from Sept. 29 to 4.36 million tonnes on Oct. 10, according to data compiled by industry consultancy SteelHome. China has ordered industrial companies, including steel mills, particularly in the northern part of the country to curb output for four months from mid-November to help clear its skies during the cold season.
The most-active rebar contract for January delivery on the Shanghai Futures Exchange fell as much as 2.5 percent to 3,512 yuan ($534) a tonne, its weakest since July 31. It closed at 3,523 yuan, down 2.2 percent.
“Concerns in Chinese steel product markets are growing over substantial inventory level increases during the Golden Week holiday,” SP Angel analysts said in a note.
While downstream demand has yet to match the increase in rebar stocks, the analysts say the increased inventory levels are likely a consequence of mills boosting production ahead of looming restrictions during winter.
Chinese markets were closed for a national holiday on Oct. 2-6.
Retreating with steel prices, the most-traded iron ore on the Dalian Commodity Exchange slipped 0.9 percent to 436 yuan per tonne.
The raw material hit a three-month low of 434.50 yuan on Tuesday on worries over slower winter demand when the steel production cuts are broadly in place.
Some Chinese cities have implemented the production cuts well ahead of the start of winter.
Some 14 steel mills in Wu’an city in China’s top steelmaking province of Hebei have been ordered to cut production to 50 percent of their blast furnace capacity from Oct. 7 to tackle air pollution in the area, Macquarie said in a note, citing Mysteel consultancy.
As of Oct. 10, inventory of imported iron ore at China’s ports reached 133.85 million tonnes, the most since late August, SteelHome data showed. Iron ore for delivery to China’s Qingdao port slid 2.6 percent to $61.01 a tonne on Tuesday, the lowest since June 27, according to Metal Bulletin.
The spot benchmark has fallen 24 percent from a 4-1/2-month high of $79.93 reached in August.