Steel and iron ore futures in China fell on Monday after recent gains that propelled them to one-month highs, reflecting continuing pressure from excess supply and lean demand growth in the world’s top market for the two commodities.
Spot iron ore is on track to end June with its first monthly gain in seven as buying interest picked up steam after prices touched a 21-month low earlier in the month, although a global supply surplus threatens to limit further gains.
Iron ore for September delivery on the Dalian Commodity Exchange was down 2.1 percent at 698 yuan ($110) a tonne by midday. The contract is still up nearly 2 percent for June, having hit a one-month peak of 719 yuan on Friday, and on track to end a six-month losing streak.
“The market remains oversupplied and I don’t see any signs of turnaround. I think the trend will be for prices to consolidate at low levels,” said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.
The steel market was similarly weak, with the most-traded rebar contract for delivery in October on the Shanghai Futures Exchange declining 1.1 percent to 3,073 yuan a tonne.
Rebar also touched a one-month peak in the prior session, and was up marginally for the month, also likely its first gain in seven.
Signs of a recovery in China’s factory activity helped fuel last week’s gains in iron ore and rebar futures and investors are eyeing the official factory data due on Tuesday.
China’s vast factory sector probably registered its best performance this year in June as growth quickened to a six-month high, further signalling that the world’s No. 2 economy is regaining strength after an unsteady start to 2014, according to a Reuters poll.
While Chinese mills have kept steel production high, traders have been running down their stocks, said Lau.
Inventory of five major steel products, including rebar, held by traders fell further to 13.41 million tonnes on Friday from 13.53 million tonnes the previous week, data from industry consultancy Mysteel showed.
Crude steel output of China’s large steel mills averaged 1.837 million tonnes a day between June 11 and 20, a record high, data from the China Iron and Steel Association showed on Friday.
The softer iron ore futures may weigh on spot iron ore prices. Apart from Dalian, Singapore futures also retreated, with the September contract on the Singapore Exchange off 0.8 percent at $95.04 per tonne.
While spot prices have recovered from a low of $89 this month, they have stayed below $100 for nearly six weeks now, making a stronger recovery more elusive this time than when prices last fell below $100 in September 2012.
“It’s too early to see a sustainable rally in iron ore because it’s still very difficult to sell steel products,” said a trader in Shanghai.
Benchmark 62 percent grade iron ore slipped 0.4 percent to $94.90 a tonne on Friday, after hitting a one-month high the day before, based on data from compiler Steel Index.
But the price of China’s biggest import commodity by volume has gained 3.4 percent so far in June, following a six-month slide.
Source – Reuters