SINGAPORE, Aug 27: Shanghai rebar steel futures dropped the most in nearly a month on Tuesday on concerns rising supply in China would limit the impact of any recovery in demand in the world’s top consumer of the alloy.
Those concerns were underscored by Baoshan Iron and Steel , China’s biggest listed steelmaker by market value, which said on Monday that steel prices would weaken in the second half.
Prices had rebounded from late June after a four-month decline amid signs that China’s economy was stabilising. But that also spurred steel mills to produce more, effectively putting a cap on price gains.
‘The price upside for steel is a bit risky because supply responds quickly to the increase in prices,’ said Helen Lau, senior mining analyst at UOB-Kay Hian in Hong Kong.
‘The market needs to see a stronger pickup on the demand side in order to digest the supply glut.’
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange was down 0.8 percent at 3,792 yuan ($620) a tonne by 0330 GMT.
That decline was the steepest for the most-active contract since July 29, and followed an increase in prices to a 1-1/2-week high on Monday.
Overcapacity in China, which produces nearly half the world’s steel, has thinned profit margins of domestic steelmakers, limiting the impact of any recovery in demand.
The country’s daily average crude steel output stood at 2.14 million tonnes in the first 10 days of August, up almost 3 percent from July 21-31, industry estimates showed last week.
There was limited activity on the spot iron ore market on Tuesday, with several Australian cargoes on offer on both the globalORE and China Beijing International Mining Exchange trading platforms but no bids so far, traders said.
Benchmark 62 percent grade iron ore <.IO62-CNI=SI> inched up 10 cents to $138.70 a tonne on Monday, based on the latest available data from compiler Steel Index.
‘At this point, I think we’re seeing supply and demand at a balanced level. We may see further price gains in iron ore but it would be slow,’ said a trader in Shanghai.
UOB-Kay Hian’s Lau said unless steel prices rise substantially, Chinese demand for imported iron ore may similarly be curbed.
‘If steel prices sustain their weakness in the fourth quarter because of oversupply, then Chinese mills will be cautious in importing iron ore again,’ she said. Shanghai rebar futures and iron ore indexes at 0330 GMT (AGENCIES)
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