China steel, iron ore hit 12-week lows as weak demand, glut weigh

25 May 2016

Iron ore and steel futures in China fell to 12-week lows on Tuesday as sputtering steel demand has trapped traders that restocked heavily during last month's price rally with unwanted products.

The two commodity futures have lost 30 percent from their peaks in April when bets fueled by faith in the world's No. 2 economy lifted volumes and prices and prompted China's commodity exchanges to impose trading curbs. Steel-making raw materials, coking coal and coke, tumbled about 6 percent at one point on Tuesday.

Chinese data for April from trade to retail sales released earlier this month has underlined weak demand overseas and at home and cooled hopes of an economic recovery.

With a seasonal pickup in steel demand over, construction activity in China will slow as parts of the country, mainly in the south, brace for rainy weather, traders said.

"Most of the demand in the physical market last month was due to traders restocking. But now they have been trapped with high supplies and are finding it difficult to resell their cargo," said a Shanghai-based trader.

Chinese traders held 9.55 million tonnes of steel products as of May 20, up for a third week in a row, according to data tracked by consultants CRU.

Rebar, or reinforcing steel used in construction, closed down 1.3 percent at 1,958 yuan ($299) a ton on the Shanghai Futures Exchange. It fell to 1,917 yuan earlier, its weakest since March 4.

"Some traders may cut losses by selling cheap," said the Shanghai trader, estimating that some traders who bought steel cargoes in recent weeks maybe losing at least 200 yuan a ton at current prices.

As domestic demand weakens again, the option for Chinese steel producers to sell more overseas could be limited by growing trade tensions with offshore markets.

China's steel industry group said on Tuesday that Beijing is not encouraging large exports and has taken measures to control shipments.

The China Iron and Steel Association said the industry is also willing to solve trade disputes through cooperation but is opposed to trade protectionism.

Iron ore on the Dalian Commodity Exchange closed 2.4 percent lower at 350.50 yuan a ton, after touching 344.50 yuan, its lowest since March 2.

Dalian coking coal finished down 4.8 percent at 660 yuan a ton and coke fell 5.6 percent to 829.50 yuan a ton.


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