Chinese iron ore futures pulled back on Tuesday after eight days of gains, with demand for the steelmaking raw material dented by steel output cuts in the world’s top producer of the material.
The production cuts continued to prop up steel prices, with rebar futures holding near their strongest level since mid-October.
The most-traded iron ore for May delivery on the Dalian Commodity Exchange was down 1.6 percent at 502.50 yuan ($76) a tonne by 0246 GMT. The contract touched a two-month high of 516.50 yuan on Monday.
Iron ore for delivery to China’s Qingdao port slid 1 percent to $67.27 a tonne on Monday, after touching a two-month high the session before, according to Metal Bulletin.
While iron ore demand across China’s northern mills had been reduced by government orders to curb steel output to fight smog during winter, some traders say the decline was not as steep as many had thought.
These mills were ordered to curb sintering output by up to half from this month through March. Sintering, where iron ore is heated into a mass as a prelude to steelmaking, causes heavy pollution.
“To our knowledge some state-owned mills have only cut sintering by around 30 percent and private mills by around 40 percent,” said a Beijing-based iron ore trader.
“Maybe the percentage of the cuts will be bigger when the pollution gets worse, but now it’s okay.”
The most-active May rebar on the Shanghai Futures Exchange was last up 0.6 percent at 3,868 yuan per tonne. That was not far below Monday’s six-week peak of 3,888 yuan.
Utilisation rates at Chinese steel mills’ blast furnaces dropped by 0.26 percentage points from a week ago to 72.4 percent as of Nov. 24, according to Morgan Stanley. Steel inventory at both traders and mills was the lowest in the past five years due to the winter cuts, the bank said.
“Given the low inventory and low steel production, we expect steel prices to remain high,” Morgan Stanley analysts said in a report.
Inventory of construction steel product rebar at Chinese traders reached 3.35 million tonnes as of Nov. 24, the lowest since at least 2011, according to data tracked by SteelHome consultancy.