Iron ore futures continued to decline amid bearish market sentiments on power rationing that limited steel output and raw materials demand.
The futures of Dalian Commodity Exchange (DCE) for January delivery then fell by 2.90% day-on-day or down RMB 22 to RMB 736/mt, during the day trading session on Thursday.
The rebar futures also dipped slightly by 0.16% day-on-day or down RMB 9 to RMB 5,465/mt, during the day trading session.
Capping monthly steel output level at 77 million mt
Market sentiments remained bearish due to expected lower steel output in Q4, as monthly average of steel production needed to be capped around 77 million mt.
Thus, the Chinese authority might keep steel production around this level throughout Q4, if they wanted to fulfill this year output goal of not exceeding the 1.065 billion mt registered in 2020.
To reach the year-end goal, more stringent steel curbs or power rationing policies might be needed to implement on Chinese provinces like Ningxia, Shaanxi, Jiangsu, Yunnan, Guangxi, Guangdong and Fujian, according to China Metallurgical News.
More inputs cost due to liberalization of power markets in China
Market participants were also concerned of higher electricity costs from Beijing policymakers’ liberalization of the China’s power market.
The measure aimed to tackle the power crunch problem in China, where high coal prices and bad weather affected power generations and called for power rationing programme to maintain stable electricity supply for industrial and residential uses.
Apparently, the electricity bills for industrial sectors were heard to rise by around 20%, while residential bills at around 10%.
Some trade participants feared that high electricity costs might affect steel industry, which is an energy intensive sector, and were previously able to lock its electricity bills in fixed power costs.