China steel, iron ore steady on expectations for mills to restock

Construction activity in China usually increases from September and October following the summer lull, spurring demand for steel as well as raw material iron ore.

By: Reuters | Manila | Published:September 6, 2016 9:30 am
china, china industries, china steel industry, china iron ore, iron ores, iron ores china, g20, g20 china, china iron industry, china news, business news G20 leaders have pledged to work together to address excess steel capacity that has punished the global industry with low prices for years while raising tensions between China and other major producers. (Source: Reuters)

Steel and iron ore futures in China stabilised on Tuesday, mostly clinging to gains from the session before, as the market was supported on expectations that steel mills will replenish their iron ore stockpiles amid a pick up in seasonal demand.

Construction activity in China usually increases from September and October following the summer lull, spurring demand for steel as well as raw material iron ore.

The most-traded January iron ore on the Dalian Commodity Exchange was nearly flat at 423 yuan ($63) a tonne by 0302 GMT.

On the Shanghai Futures Exchange, the most-active January rebar was off 0.3 percent at 2,431 yuan per tonne.

“I still think iron ore could go up to the mid $60s,” said an iron ore trader in Shanghai. “There’s a lot of restocking to be done in China before the holidays.”

The trader was referring to the week-long National Day break in China in early October.

Iron ore for delivery to China’s Tianjin port <.IO62-CNI=SI> slipped 0.3 percent to $58.80 a tonne on Monday, according to The Steel Index.

While the spot benchmark has fallen nearly 5 percent from a 3-1/2-month peak of $61.80 reached on Aug. 16, it was still up 37 percent for the year, outpacing other commodities including oil.

The restocking in iron ore is likely, traders say, as stocks at Chinese ports dropped for a fifth week in a row to 103.8 million tonnes on Sept. 2, according to SteelHome consultancy. <SH-TOT-IRONINV>

“I think there will be some restocking but not heavy because the Chinese have realised there’s no point doing heavy restocking which I think is the right thing to do,” said the trader.

While iron ore inventory at ports continued to drop, ore stockpiles at small- and medium-sized Chinese mills have increased 7.5 percent from Aug. 11 to 25, suggesting restocking by the producers, Morgan Stanley said in a note.

The restocking is also expected to gain steam as the G20 summit in China’s eastern Hangzhou city has ended, traders said. Many mills around the city were ordered shut to clear the skies ahead of the event.

G20 leaders have pledged to work together to address excess steel capacity that has punished the global industry with low prices for years while raising tensions between China and other major producers.