Iron ore futures booked slight gains on Wednesday to continue the rally for the third consecutive trading day on supply tightness issues.
The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange hiked upward by 0.40% or RMB 3.50 day-on-day to RMB 888 per tonne on Wednesday.
However, the steel rebar contract on the Shanghai Futures Exchange went down slightly by 0.29% or RMB 11 to RMB 3,832 per tonne.
Trading lot limits for DCE
Perhaps, the small gains were in responses to the trading lot limits imposed by the DCE for its September and January iron ore futures contracts since the night session of Aug 4.
Under the trading limit, the DCE’s daily trading volume that including buying and selling should not exceed 15,000 lots for the September contract or 10,000 lots for the January contract.
According to DCE, the trading lot limits were imposed to ensure operation stability and minimize market risks and exposures for investors and trading companies.
More Brazilian shipment and shortage of medium grade ores
Despite the high iron ore port inventory, trade sources stated that there still shortages of medium grade ores among the tally of 114.02 million mt from 45 major ports.
In contrast, there were plenty of Brazilian fines available in the market and dockside stocks, but many end-users still prefer to use domestic concentrates with low alumina contents to substitute Brazilian fines in the blast furnace mix.
Besides, many trade participants expect further prices correction in Brazilian fines such as Carajas fines due to anticipation of more shipment for the second half of the year.
Lower steel production from Japan and South Korea
Outside of China, the steel output remained low as South Korean largest steelmaker, POSCO announced on Wednesday to cut their crude steel output due to impact of the coronavirus pandemic.
According to POSCO, the annual crude steel production was revised to 35.3 million mt, down 4% from previous target of 36.7 million mt for 2020.
Likewise, Japan’s Nippon Steel expect its crude steel output to shrink by 20% year-on-year to 31.8 million mt for 2020, as compared to production of 39.54 million mt in 2019.
The Japanese largest steelmaker cited lower steel demand after the post-Olympic construction lull, and the negative impact of Covid-19 that lowered manufacturing activities.
The lower steel productions were in line with World Steel Association, which predicted global steel demand to contract by 6.4% on-year to 1,654 million mt due to the COVID-19 crisis.