Chinese steel futures edged down on Friday due to worries about oversupply amid an increase in utilisation rates at mills but they still posted a weekly gain, while iron ore held just below a record high. Steelmakers in China have been ramping up output to cash in on firm profit-margins despite heightened environmental measures in major steel-producing hubs.
Utilisation rates at steel mills have risen 2.07 percentage points in the week to May 24 from 71.13% the week before, data compiled by consultancy Mysteel showed. Those were the highest levels since mid-July. "With rising steel production, traders started to speed up destocking amid concerns over a glut and waning demand," analysts from Jinrui Futures said in a note.
Benchmark construction steel rebar prices fell as much as 1.9 percent overnight to 3,826 yuan ($554.04) a tonne but closed down only 0.3% on 3,889 yuan, clocking a 2.4 percent weekly rise. Hot-rolled coil futures ended down 0.2 percent on 3,726 yuan on Friday. Steel product inventories held by Chinese traders continued to fall this week, declining by 514,800 tonnes to 11.62 million tonnes, Mysteel data showed.
Steel demand typically weakens during summer in China as high temperatures and rain hamper construction activity. Meanwhile, Dalian iron ore rose for a third day and closed up 0.3% on 732 yuan a tonne, just shy of the all-time high of 735 yuan struck on Thursday. It gained 4.6% over the week.
Among other steelmaking ingredients, coking coal and coke both posted strong gains of 2.3% after a brief price correction on Thursday. "(We expect coking coal) prices will remain elevated, with strong demand from China's steel sector as US-China relations deteriorate and the probability of further economic support from the government to the slowing Chinese economy rises," said analysts at Fitch Solutions Macro Research.
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