Iron ore future saw a slight correction and retreated from the recent rally due to narrowing steel margins.
Thus, the most-traded iron ore for September delivery on China’s Dalian Commodity Exchange slipped slightly by 0.29% or RMB 2.50 to RMB 845.50 per tonne on Thursday.
On the contrary, the steel rebar contract on the Shanghai Futures Exchange saw small gains by 0.45% or RMB 17 to RMB 3,806 per tonne.
Rebar margins squeeze
Although, the steel margins are estimated at around RMB 300/mt, but the higher cost of raw materials may squeeze margins for the Chinese steel mills.
Some market participants believed that steel demand will pick up after rainy season, but other were more skeptical of the recovery in view of severe flood conditions in southern China.
Renewed US–China tension also weighed on market outlook, which caused sharp dive in stock markets and affected sentiments in paper market.
Lesser steel demand from Japan
Outside of China, the steel demand remained tepid, especially for Japan where it was estimated a drop of almost 25% during Q3.
According to the country’s Ministry of Economy, Trade and Industry, Japanese steel products demand is expected to drop by 24.3% on-year to 17.28 million mt, due to soft construction demand.
However, some trade participants expect some steel demand uptick for the Japanese automakers as they resumed output gradually amid the coronavirus pandemic.
So far, Japanese crude steel production had plunged by 17.4% year-on-year over the Jan-Jun 2020 period, while the hot-rolled steel output also went down by 17.5% on-year to 37.15 million mt in H1.