Dalian iron ore futures moved higher on Friday, shrugging off a smog alert in China's top steelmaking province of Hebei, as investors eyed demand for restocking at steel mills following the Lunar New Year holidays. Industrial plants, including steel mills and downstream users in the manufacturing sector, are still largely on holidays, with many due to resume operations next week.
Hebei on Friday announced an orange pollution alert would be in place in 11 cities, including the steel hubs of Tangshan and Handan with effect from Saturday. The move, which requires mills to cut production by at least 30 percent, sent iron ore prices lower earlier in the session before they rallied again.
"The market focus has shifted to restocking demand at mills after the holiday, from the supply gap at Vale," said analysts from Jinrui Futures in a note, referring to the iron ore miner, which has cut supply following a Brazil mine accident. The most-active iron ore contract, for May delivery, on the Dalian Commodity Exchange closed up 0.4 percent at 624 yuan ($92.13) a tonne, and clocked a gain of 3.6 percent for the week, its sixth straight weekly rise.
However, some analysts expect steel mills may delay the purchase of raw materials as high steel product inventories are providing little incentive to ramp up output. Stocks of steel rebar at steel mills rose by 155,400 tonnes in the week through Feb. 15, while hot-rolled coil inventory dropped by 28,400 tonnes, according to consultancy Mysteel.
Separately, total steel product stocks at Chinese steel traders increased by 1.62 million tonnes this week, Mysteel data showed, pointing to weak demand. Rebar stocks were up 14.2 percent and hot-rolled coil rose 9.5 percent. "With increasing pressure to digest the steel inventory, steel mills might trim output and therefore reduce demand for high-quality iron ore," the Jinrui analysts said.
Amid lukewarm demand, benchmark Shanghai rebar prices fell for a fourth day, tumbling as much as 2.6 percent to 3,593 a tonne, their lowest since Jan. 18, before closing on 3,599 yuan. They lost 2.7 percent over the week, their first weekly drop of the year. Hot-rolled coil ended down 1.8 percent on 3,535 yuan after hitting its lowest since Jan. 22.
Among other steelmaking raw materials, coking coal edged down 0.2 percent to 1,272.50 yuan a tonne, while coke slipped 1.6 percent to 2,042.50 yuan.