Chinese futures dipped slightly despite a last-minute rally to pull the paper market from the trading lows of previous day.
The most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for September delivery, dipped by 0.07% day-on-day to RMB 706 per tonne on Wednesday.
Similarly, the steel rebar contract on the Shanghai Futures Exchange dropped by 0.23% day-on-day to RMB 3,494 per tonne.
Lower steel demand expected in June
The paper market weakness may be due to market concerns over steel demand in June, when the typically rainy season is likely to affect demand especially in southern China.
Besides, the fiscal policies announced by the Two Session meeting failed to meet market expectation as they expect more stimulus packages to lift the coronavirus-battered economy.
For instance, a fiscal stimulus package worth RMB 3.6 trillion or $506 billion was introduced to spur its coronavirus-hit economy, as compared to previous stimulus package of RMB 4 trillion to lift the economy in the 2008-2009 financial crisis.
China is still the dominant driver of demand
Despite the market sentiment of slowing demand, China still led the way in iron ore and steel demand as the rest of world had a hard time following up.
According to World Steel Association (WSA), the global pig iron ore production outside China has totaled 28.9 million mt in April, down 25% year-on-year.
In the contrary, China’s pig iron output only saw a slight dip of 1.2% on-year to 72 million in April.
Going ahead, China is expected to play a bigger role in iron ore and steel demand as many European and Japanese mills were idle or reduced capacity utilization rates as they gradually resume industrial activities amid the global pandemic.