Chinese futures extended their drops on Wednesday, on limited activities in view of May Labour holiday ahead.
The most-actively traded iron ore futures for September 2020 delivery on the Dalian Commodity Exchange (DCE) dipped by 0.58% day-on-day to RMB 595.50 per tonne on Wednesday.
Following the decline, the steel rebar contract on the Shanghai Futures Exchange also dropped by 0.03% to RMB 3,302 per tonne.
Restocking activity losing steam
There were huge selling pressures in the market for June arrival cargoes as trade participants were uncertain over demand after the holiday amid global bearish outlook.
Restocking activities seemed to halt in China, while the rest of the world’s steelmakers were engulfed by lower steel prospects.
For instance, the market sentiment of German steel and metal processing industry was bearish, even lower than the financial crisis of 2008-9 period.
Trade participants were expecting the bearish market demand to last at least for another six months, though the nationwide lockdown gradually eased in the country.
There were some ramping up of productions for the automotive industry, but new order books continued to be weak amid lower demand brought by coronavirus pandemic.
Weak Q2 expected for Japanese steelmakers
Japan’s crude steel output is expected to lower further in Q2, with various closures of construction sites and lower downstream demand impacted by coronavirus pandemic.
The Q2 expectation was due to poor showing of Q1 result, when Japan produced 24.4 million mt, down 2.4% year-on-year, based on data from World Steel Association.
According to trade sources, Japan’s steel output was on a gradual decline since the Tokyo Olympics construction boom that ended around the third quarter last year and the emergence of COVID 19 further accelerated the slowdown.
Thus, major steel producers like JFE planned to suspend their blast furnaces, as the rising cost of raw materials provided less incentive for more steel production in thin margins.