Shanghai steel dips as glut concerns return, raw materials follow

6 December 2018

China’s steel prices eased on Thursday after surging nearly 2.5 percent in the previous session, as worries about oversupply and weak demand resurfaced.

Earlier market talks on potential production restriction in top steelmaking city Tangshan were proved to be inaccurate, according to reports on industrial websites, citing managers who attended a meeting summoned by the local government.

“Steel prices remain under pressure of high output at steel mills as expectation of tight supply collapsed of itself,” analysts from Huatai Futures said in a note.

The most-active construction steel rebar futures on the Shanghai Futures Exchange fell 0.6 percent to 3,388 yuan ($493.06) a tonne as of 0240 GMT, after hitting their highest since Nov. 19 earlier in the session at 3,473 yuan. On Wednesday, it jumped as much as 4.1 percent before closing 2.4 percent higher.

Spot steel prices rose less than 0.2 percent to 4,044.39 yuan a tonne, according to data compiled by Mysteel consultancy, with a total of 165,500 tonnes of rebar being traded on Wednesday across the country.

The average daily crude steel output at member mills of the Chinese Iron and Steel Association (CISA) reached 1.95 million tonnes between Nov. 21 and 30, up 1.8 percent from Nov.11-20, data from the group showed.

Steel inventory at mills also increased over the same period, up 8.52 percent to 13.27 million tonnes, CISA data showed, indicating inactive restocking intention among traders amid glut concerns.

Prices of steelmaking raw ingredients were also subdued on Thursday.

Dalian coking coal futures for January delivery were little changed at 1,404 yuan a tonne, while coke contract , which rose nearly 4 percent in the previous session, dropped 1.5 percent to 1,942.5 yuan.

Iron ore futures on the Dalian Commodity Exchange also dipped, down 0.5 percent at 470 yuan, but analysts expect firm demand from steel mills would support iron ore prices.

“With falling profit margins, steel mills would reduce input of scrap steel during iron-making process, which will give more space for iron ore consumption,” said Huatai analysts.