Shanghai rebar rebounded from the session’s lows on Thursday and iron ore futures in China and Singapore advanced after recent losses, although lingering concerns over weak Chinese demand growth and abundant supply kept a lid on gains.
Industrial commodities from oil to base metals rose along with Asian equities after minutes of the Federal Reserve’s September policy meeting suggested the U.S. central bank may be inclined to keep interest rates lower for longer.
The most-active rebar contract for January delivery on the Shanghai Futures Exchange closed up 0.7 percent at 2,550 yuan ($416) a tonne. It fell to 2,510 yuan earlier, just off a record low of 2,507 yuan touched on Wednesday.
“Steel prices have fallen so much, so it’s not surprising to see a rebound. But I doubt whether this can be sustained,” said a trader in China’s eastern Shandong province.
The price of construction-used rebar has dropped nearly 32 percent this year, pressured by weak demand in top consumer China.
Steel mills in China with long-term iron ore contracts with miners have continued to unload excess cargoes into the spot market, adding to plentiful supply that has overwhelmed the market and trapped prices for the raw material near five-year lows.
“Chinese steel mills are selling their long-term contract cargoes to us aggressively,” said an iron ore trader at a global trading firm in Singapore, adding he had received offers for nine iron ore cargoes from six mills on Thursday.
“Mills are starting to idle their blast furnaces as steel prices keep dropping due to lack of demand.”
Chinese steel mills have been unloading their excess iron ore cargoes “to free up cashflow” amid tighter credit conditions, the trader said.
SUPPLY-DRIVEN REBALANCE
Sinosteel Corp, China’s biggest state-owned steel trader, last month said it was facing financial problems as a result of unpaid bills from customers, but denied rumours that it is struggling under the weight of overdue loans amounting to 10 billion yuan ($1.63 billion).
Iron ore for immediate delivery to China slipped 0.3 percent to $79.80 a tonne on Wednesday, according to data compiled by The Steel Index. The price fell to $77.50 at the end of September, its weakest since 2009.
Iron ore has fallen more than 40 percent this year, hit hard by a glut in supply at a time of slower demand growth in China which buys around two-thirds of the world’s iron ore.
But iron ore futures at the Dalian Commodity Exchange rose on Thursday, with the most-traded January contract gaining nearly 2 percent to end at 563 yuan a tonne.
In Singapore, the December iron ore contract on the Singapore Exchange edged up 0.7 percent to $78.20 per tonne.
Rio Tinto , the world’s No. 2 iron ore miner, reiterated on Thursday that lower iron ore prices will remove 125 million tonnes of high-cost supply this year.
Citing the relentless decline in iron ore to below $70 a tonne at the end of the third quarter, Morgan Stanley said it has slashed its price forecast for the fourth quarter by 12 percent to $85. It also cut its 2015 estimate by 3 percent to $87.
“New, low cost iron ore supply is flooding the market at a rate well above demand growth. A supply-driven rebalance is needed to save prices,” Morgan Stanley analysts said in a report.
Source: Reuters
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