Posted on 12 Jul 2021
Market concerns that Chinese steelmakers will be obliged to control their production during the remainder of this year in compliance with Beijing’s wishes – and the implications for iron ore demand should this happen – are already spooking the country’s futures markets.
On Friday, the most-traded iron ore futures contract on the Dalian Commodity Exchange (DCE) for September delivery dipped for the second day to finally close the daytime trading session at Yuan 1,163/dmt ($179.2/dmt), or down by a significant Yuan 45/dmt or 3.7% from Thursday’s settlement price. On Thursday, the contract had also dropped by 3% from Wednesday’s settlement price, according to DCE’s data.
“There are so many rumours circulating in the market these days relating to possible steel production cuts in the months ahead. Such talk will definitely weaken market sentiment for a while and take heat from the rather high iron ore prices,” a Fujian-based analyst with a futures company in Southeast China commented.
“From my sources, I heard that Gansu (in North China) and Anhui (in East China) have already been discussing plans for output reduction, while provinces like Jiangsu (in East China) may also fall into line and do the same,” he said.
A Shanghai-based iron ore trader also commented that the market seems to have embraced the logic of production cuts – given the central government’s apparent determination to see output clipped – which would weigh heavily on raw materials prices. But he also cautioned that as the severity of any steel production cuts is unclear, so how far iron ore prices would go was also still unclear.
A Zhejiang-based iron ore trader noted that steel mills’ iron ore procurement in the spot market has been weak over the past several days. “For the time being, domestic steel demand is in the slack season and many steelmakers’ margins have been squeezed by the softening steel prices. So the mills are becoming cautious about their steel production and raw materials procurement, especially when iron ore prices are still high,” he elaborated.
In parallel on Friday, the DCE’s most-traded futures contract for coke for September closed the daytime trading session at Yuan 2,494.5/tonne, also down another 1.6% from the settlement price on July 8.
In contrast, the most-traded rebar contract on the Shanghai Futures Exchange for October delivery finally closed the daytime trading session on Friday slightly higher at Yuan 5,428/tonne, inching up by 0.3% from the settlement price on July 8.
Source:Mysteel Global
