China's steel futures fall as snow to curtail construction demand

4 January 2018

China’s steel rebar futures fell on Thursday, breaking a three-day rising streak, on concerns of waning demand in the construction sector because of snow forecasts in the northern part of the country.

Cold weather is expected to hit regions across China in the coming week, bringing snow and rain that may cause disruptions at construction sites, one of the biggest consumers of steel.

“In the coming week, temperatures will continue to drop across the country with frequent snow and rain, hitting demand from downstream users, especially demand for construction steel products,” said analysts at CITIC Futures in a note in Mandarin.

The most-active construction steel rebar on the Shanghai Futures Exchange fell 1.2 percent to 3,798 yuan ($584) a tonne in early trade on Thursday.

Spot steel fell 0.12 percent to 4,471.41 yuan a tonne on Wednesday, consultants Mysteel reported on its website.

Iron ore demand is set to decline as pollution warnings will lead to steel plants shutting down some units that process the ore before the smelting process.

China’s biggest steel-making city of Tangshan issued a second-level pollution alert effective starting on 8 a.m. on Thursday, the city government said. Steel mills were ordered to cut some sintering and shaft furnace production.

Other sectors, including construction and transportation, will be affected by the warning as well.

The most-active iron ore contract on the Dalian Commodity Exchange dropped 0.7 percent to 537 yuan a tonne.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB rose 0.26 percent to $74.97 a tonne on Wednesday, according to Metal Bulletin.

Steel markets were also likely pressured by the Chinese central bank’s decision to keep open market operations closed for a ninth straight day on Thursday.

The closure will drain 130 billion yuan ($19.98 billion) from the country’s money markets.