Steel, Iron-Ore Prices Take a Slide in China

20 December 2016

China’s iron-ore and steel prices tumbled Monday, as increasing stockpiles, weakening demand and Beijing’s call to rein in asset bubbles weighed on the market.

The benchmark futures contract for iron ore, traded on the Dalian Commodity Exchange, slumped 7.2%, to 560 yuan ($80.47) a ton, the biggest daily decline since Nov. 30, with sales orders piling up in the last 15 minutes. Steel-rebar futures on the Shanghai Futures Exchange fell 5.7%, to 3,171 yuan a ton, extending losses for a fourth consecutive session. Hot-rolled coil fell 4.7%, to 3,556 yuan a ton.

Rising stockpiles of iron ore, coupled with a bleaker outlook for demand as the real-estate sector losses steam, have prompted more risk-averse investors to reduce positions, analysts said.

Inventories of iron ore at major Chinese ports surged to 111.5 million tons as of Dec. 16, the highest level since September 2014, according to SteelHome, an industry data provider.

Meanwhile, recovering profitability at steel mills, thanks to China’s aggressive supply-side overhauls this year, has revived appetite for producers to keep churning out products. The monthly output of China’s steel mills soared at the fastest pace in over two years last month, according to the National Bureau of Statistics. China’s total steel output rose 1.1% to near 740 million tons in the first 11 months of the year.

For next year, investors are less sanguine as most expect Beijing’s stance on clamping down on a housing bubble will erode demand.

China’s real-estate sector has cooled since October, when authorities tightened housing purchase rules, raised minimum down-payment requirements and restricted using leverage funds to buy properties. On Friday, Chinese leaders vowed to contain housing prices, rein in asset bubbles and prevent financial risks, further dialing back expectations on demand for metals such as steel rebar that are used for infrastructure and housing construction.

In addition, China’s central government reiterated its resolution to tackle asset bubbles. That may also send a warning to some speculative investors, who fled the market for fear of tighter rules, according to traders.

“Today’s tumble could be a short-term release of panic mood, and we will see if the market will reach a turning point next year as demand points weaker,” said Wang Ying, an analyst at CCB Futures in Shanghai.