Iron ore prices in China softened in anticipation of weaker demand after a number of energy-inefficient steel mills were told to reduce or halt production. Rebar, widely used in the construction sector, has been traded at high levels on the Shanghai Futures Exchange on tighter supply in coming months.
Thirty mostly medium-sized steel mills in Tangshan, capital of Hebei province, were told to limit production, with most cutting output by 50-70 percent.
The move came after 18 steel mills in Wuan, also in Hebei, were ordered to shut down for a month, while other provinces including Shanxi and Jiangsu have also trimmed electricity supply to high-energy-consuming steel mills.
Thirty mostly medium-sized steel mills in Tangshan, capital of Hebei province, were told to limit production, with most cutting output by 50-70 percent.
The move came after 18 steel mills in Wuan, also in Hebei, were ordered to shut down for a month, while other provinces including Shanxi and Jiangsu have also trimmed electricity supply to high-energy-consuming steel mills.
This round of cutting steel output has dragged down iron ore prices on reduced steel production for the rest of the year, although some analysts doubt the output curb will ease oversupply in the massive domestic steel sector.
The Steel Index 62 percent iron ore benchmark on a landed China basis slipped $2.2 to $141.9 per tonne on Tuesday.
Iron ore spot offers also declined to $148-150 per tonne including freight, $2 lower from Tuesday, amid concern over shrinking demand, industry consultancy Mysteel said.
"Iron ore demand will fall with operations at so many steel mills affected. It will be difficult for iron ore prices to rise," said an ore purchasing official at a Tangshan steel mill.
However, tighter steel supply could lift steel prices and may prevent iron ore prices from falling too far.
"It remains to be seen which factor takes the upper hand with regard to iron ore prices," she said.
The January rebar contract SRBF1, most actively traded on the Shanghai Futures Exchange, eased slightly to 4,542 yuan ($668.9) per tonne at 0235 GMT on Tuesday, but was still higher than the support level of 4,500 yuan per tonne.
"Electricity and steel production cutbacks will be useful for steel prices in the short term, but I am not sure this campaign can be sustained," said BOC International Futures analyst Jiang Zhiwei.
Source: Reuters
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