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Iron ore flat as China steel curb woes offset optimism around stimulus hopes

Iron ore futures struggled for firm direction on Thursday, as worries about steel production curbs in China offset optimism about additional stimulus expectations to support the country’s sputtering post-COVID economic rebound.

Some steel mills in China’s southwest Sichuan province had received verbal notice about restriction on electricity use, according to consultancy and industry data provider Mysteel.

That could prompt mills to curb operations, just as China’s top steel-producing city of Tangshan has ordered an output cut for July amid deteriorating air quality.

But iron ore prices also appeared to remain supported in anticipation of stimulus policies to be unveiled after a regular meeting of the Communist Party’s political bureau this month.

The most-traded August iron ore contract on the Singapore Exchange SZZFQ3 turned virtually flat at $109.65 per metric ton, as of 0730 GMT, after swinging between gains and losses.

On China’s Dalian Commodity Exchange, the most-active September iron ore contract DCIOcv1 ended a rangebound daytime session 1% higher at 829.50 yuan ($114.52) per metric ton.

Steel production controls “will lead to a significant decline in demand for iron ore”, Sinosteel Futures analysts said in a note, adding that “the supply side has weak support for prices” amid rising supply from Australia and Brazil.

Unfavourable weather conditions in China could also hamper steel production.

Weather forecasters on Thursday issued a string of heat advisories across northern parts of the country as temperatures were expected to breach 40 degrees Celsius (104 degrees Fahrenheit) in some areas, while raging rain and flooding continued elsewhere in China.

Other steelmaking inputs advanced, with coking coal DJMcv1 and coke DCJcv1 up 1.8% and 2.1%, respectively.

Rebar SRBcv1 on Shanghai Futures Exchange ticked up 0.1%, while hot-rolled coil SHHCcv1 gained 0.2% and wire rod SWRcv1 dipped 0.9%. Stainless steel SHSScv1 climbed 0.5%.

“The (steel) market lacks new drivers, and prices continue to swing between macro expectations and fundamentals,” Sinosteel analysts said.

Source: Reuters

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