15-09-2016

Shanghai steel hits 7-week low on slow demand as supply builds

Steel

Chinese steel futures dropped to a seven-week low on Wednesday, extending this month’s losses amid weak demand and rising supply, with market participants unimpressed by Beijing’s efforts at curbing excess capacity.

Demand for steel in China, the world’s top consumer and producer, typically increases in September and October as construction activity resumes after a summer lull.

“At present, we are not seeing any significant pickup in demand, to be honest in terms of steel-consuming sectors,” said Kevin Bai, an analyst in Beijing with CRU Consultancy.

“With prices coming down there is more hesitation among people to purchase.”

The most-traded rebar on the Shanghai Futures Exchange dropped as far as 2,246 yuan ($337) a tonne, its lowest since July 25. The construction steel product closed down 1 percent at 2,250 yuan.

There was limited physical trading in China ahead of public holidays on Thursday and Friday, traders said.

Investor sentiment has been dragged down by the “deterioration in the futures market and people are quite bearish,” said Bai.

Rebar futures have fallen around 7 percent so far in September after gains in the past three months that were supported by the efforts to curb steel capacity.

Market participants are realising, though, that there may not be a material impact from the capacity cuts, which have involved shutting steelmaking facilities that “have been inactive for months or years,” said Bai.

China has cut 47 percent of the 45 million tonnes in annual steel capacity it pledged to remove this year while crude steel output rose for a sixth straight month in August.

“In our opinion, the more impactful measures are likely to be environmental inspections, which increasingly appear to be the central government’s favoured means of production rationalization,” Lee McMillan, analyst at Clarksons Platou Securities, said in a report.

The more frequent environmental inspections done by Chinese authorities this year have prompted mills to curb production or shut plants for a certain period of time, analysts say.

Weaker steel futures weighed on raw material iron ore, as the most-active January iron ore contract on the Dalian Commodity Exchange slipped 0.4 percent to 393.50 yuan a tonne. It touched a seven-week low of 388.50 yuan on Tuesday.

Iron ore for delivery to China’s Tianjin port .IO62-CNI=SI slid 2.3 percent to $56.20 a tonne on Tuesday, the lowest since July 25, according to The Steel Index (TSI).

There were limited physical trades with the selloff in futures markets driving price expectations “increasingly bearish,” TSI said.

Source: Reuters

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