Chinese steel and iron ore futures dropped on Monday after data pointed to slower factory growth in China last month and ahead of this week’s deadline when the United States is set to impose $34 billion of tariffs on Chinese exports.
Signs of a slowing Chinese economy and risks from steep tariffs brought in during a festering Sino-U.S. trade row will curb demand for iron ore, pushing down its spot price 13 percent in the second half of 2018, a Reuters poll showed.
“We think steel demand in China may drop in the coming one- and-a-half years. Exports cannot be bullish under a trade war,” said Guiqiu Zhuo, analyst, Jinrui Futures.
The most actively traded September iron ore contract on the Dalian Commodity Exchange closed down 1.9 percent at 463 yuan ($70) a tonne, pulling back from Friday’s two-week peak of 476 yuan.
The October rebar on the Shanghai Futures Exchange lost 0.9 percent to 3,751 yuan a tonne.
Chinese equities slid nearly 3 percent ahead of a July 6 deadline when the United States is due to slap additional tariffs on Chinese exports. Beijing is expected to respond with tariffs of its own on U.S. goods.
Also fuelling the risk-off tone was a pair of data showing growth in China’s manufacturing sector cooled in June.
Stockpiles of iron ore at China’s ports climbed 1.7 million tonnes to 157.58 million tonnes on Friday after recent declines, data tracked by SteelHome consultancy showed.
The increase puts the inventory back near a record high of 161.98 million tonnes reached in early June.
While port stocks are high, they only account for about 1-1/2 months of Chinese imports, said Helen Lau, analyst at Argonaut Securities.
“China’s steel production is growing by 6-7 percent each month. That means you will need extra million tonnes of iron ore, so that’s why China will import more,” she said.
Amid a well-supplied market, the price of spot iron ore has dropped almost 11 percent this year to $65.02 a tonne on Friday, near its lowest in a month.
After averaging $70 a tonne in the first half of 2018, spot iron ore is forecast to average $61 over the next six months, according to the median estimate in a Reuters poll of 16 analysts.
Prices of other steelmaking ingredients traded in China also fell on Monday, with coke skidding 2.5 percent to 2,025.50 yuan a tonne and coking coal sliding 1.9 percent to settle at 1,166.50 yuan after touching a two-month low of 1,154 yuan.
Yaang Pipe Industry Co., Limited (www.yaang.com)