Dalian iron ore rebounds; Tangshan move stokes demand worries

Steel building materials in China’s eastern city of Jiujiang. Image from Shutterstock

China’s iron ore futures clawed back on Tuesday, after a brief dip in early trade, despite mounting concerns over waning demand at mills amid heightened production restrictions in the top steelmaking city of Tangshan.

The Tangshan government said on Monday it had summoned executives from 48 regional companies with high pollution emissions to a meeting and ordered to trim output to reduce the smog.

The companies in the steel, cement and coke industries vowed to “resolutely” comply with output curbs set by city authorities and cut production to the utmost extent, according to a statement issued by the government.

Utilisation rates at steel mills across China declined to 71.13% last week from a year high of 71.69% in late May, data compiled by Mysteel consultancy showed.

“Market focus is now switching to demand side. Profit margins continue to narrow, while more maintenance at mills is expected, which will add pressure on raw materials,” CITIC Futures analysts said in a note in Mandarin.

The Dalian Commodity Exchange had said on Friday it would raise trading limits and margins for the iron ore futures contract for September delivery, the most traded contract at this moment, effective from June 18.

The move followed an 11.4% spike in iron ore prices last week, with the contract touching a peak of 797.5 yuan ($115.16) on Friday.

The September contract closed up 2.1% at 786 yuan a tonne.

Meanwhile, Brazil’s Vale SA, the world’s No.1 iron ore producer, told analysts that it expected to soon restore 20 million tonnes of yearly capacity at its Brucutu mine, easing concerns about tight supply.

The mine is operating at only a third of its capacity.

Prices of steel products also rebounded on Tuesday afternoon, but worries over weakening demand from downstream sectors remained.

Steel stocks rose 3% to 11.2 million tonnes last week, as of June 14, with rebar inventory climbing to 5.51 million tonnes and hot-rolled coil reaching 2.18 million tonnes, Mysteel data showed.

Benchmark Shanghai rebar prices edged up 0.3% to 3,732 yuan a tonne, while hot-rolled coil advanced 0.2% to 3,601 yuan.

Dalian coking coal settled up 0.2% at 1,389 yuan. Coke futures closed 1.6% lower at 2,055.5 yuan.

($1 = 6.9254 Chinese yuan)

(By Muyu Xu and Shivani Singh; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

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