China steel raw materials drop on demand woes

19 December 2018

Chinese coking coal and coke futures dropped on Wednesday, but closed off the day’s lows, as steel producers continued to seek lower prices for the steelmaking raw materials due to shrinking profit margins.

Dalian coking coal closed down 2.8 percent at 1,195.5 yuan ($173.41) a tonne, after falling as much as 3.7 percent earlier in the day.

Coke ended down 1.2 percent at 1,977 yuan a tonne, off the day’s low of 1,960 yuan.

“The market remains a bit bearish,” said Richard Lu, an analyst at CRU consultancy in Beijing. “Over the past several weeks, coke prices declined because of narrow margins at the steel mills, and they have demanded for lower coke prices, and producers have accepted it.”

Profit margins at Chinese steel mills narrowed sharply in November amid plentiful supply as the government scrapped blanket production restrictions for winter aimed at tackling smog. Beijing instead allowed cities and provinces to set their own output curbs based on emissions.

The most traded iron ore on the Dalian Commodity Exchange ended 0.2 percent higher at 487 yuan a tonne, after falling as much as 0.4 during the session.

“Investors remain focused on the impact of winter (output) curbs on steel mills in regions such as Tangshan,” ANZ Research said in a note, referring to one of China’s major steelmaking cities.

Prices of steel products, however, remained supported amid hopes demand will get a boost next year.

The most-active rebar contract on the Shanghai Futures Exchange was up 0.2 percent at 3,425 yuan a tonne. Hot rolled coil rose 0.5 percent to 3,448 yuan.

“The Chinese government is shifting their focus for 2019 to look at pushing for (higher GDP growth) and lesser on supply-side reform,” said Darren Toh, a data scientist with Singapore-based steel and iron ore data analytics company Tivlon Technologies.

“Supply-side reform has been done for three years and market is pricing in for more infrastructure demand in 2019.”