Struggling Chinese steel caps iron ore’s upside

Iron_Ore

Dalian iron ore futures struggled to edge higher on Wednesday, pressured by weak steel prices in China that have limited appetite among producers for immediate cargoes of the raw material.

Shanghai steel futures were trapped near a record low, having lost more than 60 percent from early 2013 amid a slowing Chinese economy that has shrunk domestic steel demand and forced more mills to sell overseas.

“If you go primarily by fundamentals, steel mills shouldn’t be buying iron ore given the kind of losses that they are making,” said a Shanghai-based iron ore trader. Construction-used rebar for January delivery on the Shanghai Futures Exchange was flat at 1,830 yuan ($288) a tonne by 0319 GMT. That’s not too far off the 1,815 yuan level it touched on Sept. 30, the lowest for a most-active contract since the bourse launched rebar futures in 2009.

On the Dalian Commodity Exchange, the January iron ore contract gained 0.4 percent to 377 yuan a tonne. An approaching winter in China which slows construction activity could further darken the outlook for domestic steel demand. And analysts say the upside potential for steel exports may be capped by rising trade friction with producers elsewhere in the world. China’s steel exports hit a record high of 11.25 million tonnes in September, data showed on Tuesday.

“If China’s steel product export growth slows due to trade barriers, we could see a glut of steel in China push down domestic steel prices, likely translating through to weaker iron ore prices due to margin pressure,” Commonwealth Bank of Australia said in a note. Iron ore for immediate delivery to China’s Tianjin port .IO62-CNI=SI fell 1.4 percent to $54.90 a tonne on Tuesday, according to The Steel Index (TSI). Sentiment in the spot iron ore market was “decidedly softer”, TSI said, even as data on Tuesday showed that China’s imports of the steelmaking commodity jumped 16 percent from August to 86.12 million tonnes in September, the highest this year.

The spot benchmark has dropped 23 percent this year and is on track to stretch its losing streak to a third year in a row.

[reuters]

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