steel and iron ore futures in China fell to one-month lows on Monday, stretching steep losses from the prior session, weighed down by slow demand that has kept steel traders from replenishing inventories and iron ore stocks at ports high. Stocks of five major steel products held by Chinese traders fell to 13.13 million tonnes on Friday, according to industry consultancy Mysteel. That is the lowest inventory level since December 2012, said Helen Lau, analyst at UOB-Kay Han Securities in Hong Kong.
"Because the inventory is so low, I expect some restocking by traders and end-users, but maybe only towards late August because seasonal demand is slowing down as the weather gets hotter," said Lau. Construction activity thins during summer in China. Rebar for January delivery on the Shanghai Futures Exchange touched a session low of 3,043 yuan ($490), its weakest since June 20. It was down 1 percent at 3,054 yuan by midday.
Rebar, or reinforcing bar which is used in construction, dropped 2.5 percent on Friday. China's commitment to spur economic growth via measures including infrastructure spending has helped lift prices of both steel and iron ore to their highest since late May before Friday's slide. But traders said supply continued to outstrip demand for iron ore in the spot market, with Chinese steel mills still unloading excess cargoes back into the spot market.
Stocks of iron ore among Chinese mills rose to 33 days of use last week from 30 days in late June, said Lau, reflecting recent restocking after benchmark spot prices fell to a 21-month low of $89 a tonne last month. At China's ports, the inventory of imported iron ore stood at 113.6 million tonnes on Friday, just slightly off the record high of 113.7 million tonnes reached earlier this month, according to SteelHome, which tracks the data at 44 Chinese ports.
The most-active iron ore contract for September delivery on the Dalian Commodity Exchange fell to 683 yuan a tonne, its lowest since June 24, before paring losses to trade at 688 yuan by midday, down 1.2 percent. The contract fell by its daily downside limit of 4 percent on Friday. Iron ore for immediate delivery to China dropped nearly 1 percent to $96.60 a tonne on Friday, according to data compiled by Steel Index, falling marginally for all of last week after a four-week rally.
Worries over Chinese steel mills going under have also weighed on sentiment towards the sector. "We assume the market is concerned by the domino effect of these collapses and the potential for banks to further tighten credit conditions," Standard Bank said in a note. Zheng Boping, vice-general manager of Hunan Valin Steel , one of China's biggest steel producers, is being investigated for accepting bribes, state prosecutors said on Thursday. Earlier this month, the semi-official China Business News reported that Xilin Iron and Steel Group, the biggest producer in the northeast province of Heilongjiang, was struggling with mounting debts that have left it unable to pay workers.
Source; Reuters
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