Chinese iron ore futures edged down in early trade on Tuesday, taking a breather after a five-session rally that brought the benchmark contract to a three-week high, but the pullback was muted amid improved steel margins.
Dalian Commodity Exchange’s most-traded iron ore contract, with January 2020 expiry, slipped 0.9% to 627 yuan ($89.26) a tonne. The steelmaking raw material hit an intra-day high of 638 yuan on Monday, its strongest since October 28.
On the Singapore Exchange, the front-month December iron ore contract slipped 0.4% to $83 a tonne after recent gains.
“There’s just a slight correction that is normal after successive gains and it could also be due to a possible new round of (steel) operating restrictions,” said Richard Lu, a senior analyst at metals consultancy CRU’s Beijing office.
With China expecting unfavorable weather in winter this year that could bring more smog throughout its northern provinces, steel production restrictions will likely continue and could even intensify.
Prices of steel products and ingredients, however, remain supported by fundamentals, Lu said, with downstream demand particularly in China’s construction sector recovering early this month while steel inventories have fallen to their lowest levels since January this year. SH-TOT-RBARINV SH-TOT-HRCLINV
Iron ore’s mild pullback followed news that China has started an investigation into its steel mills’ production capacity amid increasing worries about the rapid growth in output this year.
China’s National Development and Reform Commission, Ministry of Industry and Information Technology, and National Bureau of Statistics are looking to verify steel mills’ capacity, production and fixed-asset investments, according to a notice circulated online on Monday.
The investigation comes as steel output in China, which accounts for about half of the world’s supply of the construction and manufacturing material, continues to grow strongly despite the elimination of the some of the country’s overcapacity.
For the first 10 months of the year, China churned out 829.22 million tonnes of steel, up 7.4% from the same period last year.
FUNDAMENTALS
* Benchmark spot 62% iron ore was at $85 a tonne on Monday, extending its rebound from last week’s nine-month low, SteelHome consultancy data showed. SH-CCN-IRNOR62
* The most-traded construction steel rebar contract on the Shanghai Futures Exchange rose 1.8% to 3,615 yuan a tonne, extending gains into a sixth session to hit the highest since Aug. 1 this year.
Source: Reuters |
