MANILA: Dalian and Singapore iron ore futures slumped to one-week lows on Thursday, pressured by worries about an unsustainable demand recovery in top steel producer China and prospects of increased supply.
On China’s Dalian Commodity Exchange, the steelmaking ingredient’s most-traded iron ore, for delivery in January next year, dropped 4.1% to 696.50 yuan ($103.14) a tonne, its weakest since July 28. Iron ore’s front-month September contract on the Singapore Exchange fell by up to 2.4% to $107.30 a tonne, down for a fifth session.
China’s troubled property sector, COVID-19 curbs, decarbonisation goals that entail steel production cuts, and increased Sino-US tensions over Taiwan all weighed on sentiment, analysts said. Construction steel rebar and hot-rolled coil on the Shanghai Futures Exchange both fell 1.7%. Stainless steel rose 0.5%.
“Iron ore lacks continuous upward momentum,” analysts at Zhongzhou Futures said in a note, despite rebounding steel margins in China that had fuelled a recent rally. While the steel industry’s profitability has turned positive, they said the strength and sustainability of steel mills’ resumption of production remains to be seen. “Steel mills are still mainly purchasing on demand. There is no expected large-scale replenishment of warehouses,” Sinosteel Futures analysts said in a note. Prices of other steelmaking ingredients also fell, with Dalian coking coal tumbling 4.3% and coke slumping 3.3%.
As iron ore demand is expected to remain subdued in coming months amid steady shipments from key suppliers Australia and Brazil, stockpiles in China may continue rising, analysts said. Imported iron ore stocked at Chinese ports had risen steadily over the last five weeks, hitting a 10-week peak of 135.50 million tonnes, as of July 29, based on SteelHome consultancy data.
Benchmark 62%-grade iron ore’s spot price for the China-bound material dropped to a one-week low of $112.50 a tonne on Wednesday, SteelHome data also showed.
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