Iron ore futures dropped on Monday, due to market concerns over unfavorable weather conditions in June and low import volume from previous month.
The futures of Dalian Commodity Exchange (DCE) for September delivery then went down by 4.40% on-day or down RMB 51.50 to RMB 1,118/mt on Monday.
The steel rebar contract on the Shanghai Futures Exchange also dropped by 4.17% or down RMB 216 day-on-day to RMB 4,959/mt.
Typical lull season in June
Market sentiments were more bearish with incoming rainy season in June, which was a traditional lull period for Chinese steel market.
As heavy rains might affect logistics and demand in southern China, while there were also market talks of more Chinese city planning for stricter output cut to improve air quality.
Thus, many mills were heard to be only procuring on need basis and were more cautious in purchases for the month.
Weak margins and lower imports volume in May
Some market participants were also concerned over softening steel margins, as some trade sources estimated that the rebar and HRC margins had dropped to RMB 300/mt level from previous high of over RMB 1,000/mt level in mid-May.
Meanwhile, the lower iron ore imports during May also dampened market sentiment as China’s official customs data recorded a monthly drop of 8.9% to 89.79 million mt in May.
The decline in monthly import may be due to the weeklong holiday in early May, though the bearish market outlook caused Mysteel to predict lower rebar prices over the Jun 7-11 period in view of lesser steel demand during the rainy season.