China Steel, Iron Ore Futures Drop On OverSupply Concerns

19 May 2016

Chinese iron ore and steel futures slipped on Wednesday, giving up gains seen earlier in the session as worries about a persistent supply glut dragged on prices.

Both commodities had risen about 2 percent over the past two sessions, steadying after a sharp almost 12 percent drop last week. But industry experts say this was only an indication of a less-bearish market and that weak supply-demand fundamentals would soon reassert themselves, dragging down prices once more.

“The market is expected to be driven more by fundamentals after big volatilities … supply is rising while demand growth is slowing. The oversupply situation will not be changed in a short term,” the China Iron & Steel Association said.

The most active iron ore contract on the Dalian Commodity Exchange closed down 0.7 percent at 372 yuan ($56.92) a tonne, off a one-week top of 392 yuan hit earlier.

Rebar futures on the Shanghai Futures Exchange, which rose almost 3 percent earlier in the day, ended down 1 percent at 2,055 yuan a tonne.

Steel suffered its biggest seven-day drop on record in the week to May 13, while iron ore logged its worst loss in almost a year, hurt by strong measures by Chinese exchanges to stamp out speculative activity and a persistent glut.

Global producers blame China for the world steel oversupply, claiming the country has distorted pricing by dumping its excess output abroad as demand at home slows. Just this week, the United States slapped Chinese steelmakers with steep import duties of 522 percent on cold-rolled flat steel.

Beijing, however, has defended itself against these allegations and says it has done enough to cut steel capacity, blaming global excess and weak demand for the industry’s woes.

The weakness in the steel market was reflected not only in prices of the raw material iron ore, but also across other ingredients such as coke, which slipped 0.5 percent, and coking coal that was down 0.3 percent.

Iron ore for immediate delivery to China’s Tianjin port .IO62-CNI=SI rose 3.5 percent to $55.70 a tonne on Tuesday, according to The Steel Index.


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