Chinese futures rose on the opening day of the week, due to bullish market sentiment and concerns over supply tightness.
As such, the most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for September delivery, rose by RMB 6.50 or 0.87% day-on-day to RMB 750.50 per tonne on Monday.
Similarly, the steel rebar contract on the Shanghai Futures Exchange gained by RMB 15 or 0.42% at RMB 3,618 per tonne.
Tangshan extend output restriction and tight supply
The upward movement of futures were following the new round of extended steel output restriction in Tangshan which is likely to last till end of the month.
In the meantime, there was some supply tightness of Australian medium grade fines among the Chinese port stocks that supported prices. Buyers were heard to seek for Jimblebar fines and MAC fines due to cost efficiency, while some trade participants were attracted to discounted fines like Roy Hill fines.
There was also some bull in the equity market as the Shanghai Composite soared more than 5% on Monday from market optimism of China recovering faster and less affected by coronavirus outbreak at the moment.
High steel output and shrinking margins
Despite the bullish market sentiment, the Chinese mills’ margins had been shrinking from the weakening steel prices yet high steel production, based on Mysteel data.
For instance, China’s price of HRB 400 20mm dia rebar dropped further by RMB 39/mt from June 24 to RMB 3,751/mt, including the 13% VAT as of July 3, due to lower steel demand amid rainy season.
Meanwhile, the country’s daily crude steel output remained at high level over the last ten days of June that reached record high at 2.14 million tonnes, up 5.7% year-on-year, according to China Iron and Steel Association (CISA).