Chinese steel futures fell on Wednesday as production restrictions have been eased in some steelmaking hubs, raising concerns that overall output will remain brisk and providing extra support to record-high iron ore prices.
The most-active October rebar contract on the Shanghai Futures Exchange dropped as much as 1.5% to 4,001 yuan ($581.15) a tonne in early trade, adding to Tuesday’s 1.1% loss and pulling away from a more than eight-year peak of 4,148 yuan hit on Monday.
The construction steel benchmark had staged a nine-session rally between June 19 and July 1, buoyed by increased demand, falling stocks and output curbs in highly-polluted industrial hubs in China.
China’s top steel city of Tangshan imposed beginning last month a new set of output restrictions on its iron and steel producers, which will remain in place until Aug. 1.
“The policy declared in Tangshan turned out to be not as strict as we heard last month,” said a Shanghai-based steel trader. Reuters could not immediately verify this, but an industry website reported late on Tuesday that Tangshan has indeed eased the production curbs.
“That means some mills don’t need to cut so much production this month,” the trader said. “They may be allowed to continue to produce during certain times, and this will increase supply of steel. That’s why the Shanghai futures are under pressure.”
Hot rolled coil, steel used in cars and home appliances, dipped as much as 1.6% to 3,867 yuan a tonne, pulling away from its record high of 4,049 yuan also hit on Monday.
Less strict curbs on steel output could mean additional demand for steelmaking inputs, including iron ore.
“Iron ore futures are rising because of a mix of strong fundamentals and speculative trading,” the trader said.
The most-active September iron ore contract on the Dalian Commodity Exchange rose as much as 2.8% to 911.5 yuan a tonne, the highest since the benchmark’s launch in 2013.
Dalian iron ore has more doubled its value this year as stocks in ports across China have fallen to the lowest since early 2017 due to reduced supplies from top exporters Australia and Brazil, as well as robust demand. SH-TOT-IRONINV
“I’m not sure how long this rally could last, but at present the steel mills are definitely under pressure with profit margins squeezed because of higher input prices,” the trader said.
Benchmark spot 62% grade iron ore for delivery to China SH-CCN-IRNOR62 was at $123.50 a tonne as of Tuesday, the highest since early 2014, data tracked by SteelHome consultancy showed.
Other steelmaking raw materials were trading mixed, with Dalian coking coal futures down 1.6% at 1,378 yuan a tonne as of 0254 GMT, while coke futures edged up 0.3% to 2,109 yuan.
Source: Reuters (Reporting by Enrico dela Cruz; editing by Gopakumar Warrier)