China iron ore, rebar rebound after rout; but demand seen shrinking

Iron ore and steel futures in China recovered on Monday after last week’s rout that pulled them to record lows, but prices are likely to remain under pressure amid expectations that Chinese demand for both commodities will shrink next year.

China’s crude steel output will fall a second straight year in 2016 as a cooling economy continues to shrink demand in the world’s top producer and consumer, the nation’s Metallurgical Industry Planning and Research Institute (MPI) said.

That will cut China’s demand for iron ore by 4.2 percent to 1.07 billion tonnes, the MPI said. Iron ore for May delivery on the Dalian Commodity Exchange was up 1.9 percent at 293.50 yuan ($46) a tonne by 0255 GMT. That was after touching 284 yuan on Friday, lowest for a most-traded contract since the bourse launched iron ore futures in October 2013. On the Shanghai Futures Exchange, the most-active rebar rose 1.3 percent to 1,664 yuan a tonne, having fallen to an all-time low of 1,618 yuan last week. Rising iron ore stocks at China’s ports underline slow demand for the raw material, while cash-strapped Chinese steel mills have been selling their ore inventories at a loss to shore up cashflow.

“The issue is getting buyers,” said Kelly Teoh, iron ore derivatives broker at Clarksons Platou Futures in Singapore. “If you look at the physical trades, it’s mostly offers.” Stocks of imported ore sitting at China’s major ports rose nearly 2 million tonnes from the previous week to 89.5 million tonnes on Friday, the highest since May, according to data tracked by industry consultancy SteelHome. The port inventory is up 13 percent from this year’s low in June.

Benchmark 62-percent grade iron ore for immediate delivery to China’s Tianjin port slid 2.2 percent to $39.40 a tonne on Friday, falling under $40 for the first time since The Steel Index (TSI) began assessing prices in 2008. Under the annual pricing system that preceded TSI records, it was the also the lowest since 2005, according to data compiled by Goldman Sachs. Iron ore, the major revenue earner for top miners Vale and Rio Tinto, is among the industrial commodities hit hardest by China’s economic slowdown, with the price down 45 percent this year, far more than Brent crude and copper.

[reuters]

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