Chinese steel futures continued their decline on Monday, with buyers concerned by persistent overcapacity problems, especially after a weaker-than-expected performance by China's manufacturing sector in August.
Economic data issued on Monday suggested that China's stimulus measures were no longer enough to offset declining investment in the property sector, which is suffering from overcapacity.
China's factory sector growth fell to a three-month low in August, according to a private survey published on Monday, and China's official manufacturing purchasing manager's index (PMI) also dipped over the month.
The most traded rebar contract on the Shanghai Futures Exchange ended the morning at 2,925 yuan ($476) per tonne, down 0.4 percent to a new low. The most active iron ore contract for September delivery on the Dalian Commodity Exchange finished at 622 yuan per tonne, down 0.8 percent.
Benchmark 62 percent iron ore for immediate delivery into China .IO62-CNI=SI ended Friday up 0.7 percent at $87.90 per tonne, recovering slightly after nearly two weeks of consecutive daily declines. It fell 8 percent over the whole of August.
The China Iron and Steel Association (CISA) encouraged end-users to delay orders and run down their iron or inventories on the expectation of cheaper prices, but traders said a sustained improvement this month looks unlikely.
"I think people are mistaken if they think there is going to be a big recovery in September," said a manager with a Beijing-based commodity trading house.
"There is probably going to be more steel demand, and some restocking, but there is no solution to the overcapacity everywhere in housing, in iron ore, in steel products," he said.
Bank ANZ said in a note that despite the Friday increase, the market remained "pessimistic" and steel mills were still only restocking "sporadically".
At the same time, steel production has remained close to an all-time high, with many struggling mills worried that any decision to cut output would reduce their cashflow and put them at further risk of closure.
The latest CISA figures showed that product inventories at steel mills reached 15.25 million tonnes in mid-August, up 4.68 percent from the first 10 days of the month.
Analysts said the increase reflected the reluctance of traders to take on new stock, despite expectations of improving seasonal demand, with prices weighed down by the supply glut.
Source: Reuters
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