Chinese Steel Futures Tumble On Economy Worries

19 July 2016

Chinese steel futures fell more than 5 percent on Tuesday, extending a decline in the previous session as slower home sales spurred investors to take profits amid concerns about the world’s second-biggest economy.

China’s home price rises slowed in June for a second straight month, adding to fears that a construction-led economic rebound in the economy may be unsustainable, despite a big spike in new yuan loans in June.

“The market is divided now. Some expect a big drop in home price rises will weigh on the steel sector, while some still hope that supply interruptions and low inventories will underpin prices,” said Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen.

“I believe the downside risk remains small as rebar futures fell too quickly and are slightly below spot now. Prices will fluctuate at high levels,” he added.

The October benchmark rebar contract on the Shanghai Futures Exchange fell more than 5 percent to touch a more than two-week low of 2,305 yuan ($344.10) a tonne. It traded 5.5 percent lower at 2,306 yuan by midday break.

Futures rallied last week as investors factored in bright prospects for China’s economy, but the gap to spot prices had already been erased by falls on Monday, said a fund researcher in Shanghai.

“The market is awaiting new stories to trade,” he said.

Open interest – contracts held by investors – fell by 56,198 lots to 245.3 million lots, as some investors took profit and cut positions.

On the Dalian Commodity Exchange, the September iron ore contract dropped nearly 4 percent to 429 yuan a tonne by midday. Coke fell more than 2 percent and coking coal dropped nearly 1 percent.

Chinese steel mills maintained high running rates, lifting appetite for iron ore, but rising port inventories and ramp-up production by top miners could also weigh on the raw material.

Iron ore inventories at big Chinese ports <CUS-STKTOT-IORE> have surged to above 100 million tonnes since July and reached 105.5 million tonnes last Friday, the highest since Sept 16, 2014, according to

Rio Tinto said on Tuesday it was on track to meet its full-year iron ore shipment guidance from its Australian mines of roughly 330 million tonnes, underscoring the strength of sales to China, despite concerns of oversupply. ($1 = 6.6980 Chinese yuan renminbi)


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