Chinese iron ore prices fell on Friday after a nearly 7-percent jump in the previous session, ending their strongest week since December on expectations of rising demand for restocking at steel mills. The most-active iron ore futures on the Dalian Commodity Exchange eased 1 percent to 461 yuan ($73.37) a tonne after a sharp rally in the previous session, but still marked their strongest weekly gain in 17 weeks.
"The market has been in a party mood since the central bank said it was cutting (bank reserve requirements). On a fundamental basis, the market expects some restocking demand for raw materials since mills have incentives to churn out output amid fat margins," said a Shanghai-based iron ore trader. Average output profits at steel mills are currently around 681 yuan a tonne in top steelmaking city Tangshan, according to Mysteel consultancy.
China's central bank earlier this week said it would cut the cash most commercial banks must hold as reserves, potentially adding liquidity to the market. On Thursday, key iron ore supplier BHP Billiton Ltd cut its 2018 fiscal year output guidance for iron ore by 2 percent to 272-274 million tonnes, citing issues in its railroad car unloading system.
"Long-repressed iron ore prices showed a rebound after BHP's statement. However, the amount of output BHP will cut will have a limited impact of global supplies," said analysts at CITIC Futures in a note in Mandarin, warning investors should watch out for risks as iron ore prices have climbed too fast. "The market is being moved by speculative money. Many traders who used to invest in rebar have shifted to raw materials," said the Shanghai trader, requesting anonymity as he was not authorised to speak with media.
Construction rebar contracts for October delivery on the Shanghai Futures Exchange dropped 1.1 percent to 3,454 yuan a tonne. They have gained 10 percent over the past three weeks. Spot rebar prices went up by 0.6 percent to 4163.3 yuan a tonne on Thursday, according to Mysteel data. Coking coal prices fell 2.4 percent to 1,130.5 yuan a tonne while coke futures settled at 1,840 yuan.