Iron ore futures ended the week on surplus, with market optimism over better steel demand in the new year with improving margins.
The futures of Dalian Commodity Exchange (DCE) for January delivery then jumped by 1.88% day-on-day or up RMB 12.50 to RMB 676.50/mt, during the day trading session on Friday.
The rebar futures also went up slightly by 0.63% day-on-day or up RMB 28 to RMB 4,505/mt, during the day trading session.
More restocking activities to replenish inventory
Some trade sources expected more restocking activities for the new year, due to falling steel stocks in China.
According to Mysteel, Chinese mills’ steel stocks dropped for the 5th consecutive week to 4.4 million mt, a two-year low and down 5.6% on-week during Dec 9-15 period.
Similarly, the country’s total retail steel stocks also dipped to a 11-month low to 14.1 million mt, down 4.1% weekly during the Dec 10-16 period.
Thus, trade sources expected some stock replenishing activities among mills and traders over the near term, as most market participants anticipated stable steel demand for the new year.
Better margins and higher steel output in Dec and Jan 2022
Steel margins had improved as Platts estimated China’s domestic hot-rolled coil and rebar sales profit margins at $106/mt and $116/mt respectively by mid-December.
The higher margins provided more incentive for steel output toward the new year, as it was heard some major steel mills like Baowu Group had finished their mandatory steel cut for the year and might push for more production given the profitability.
Then, other mills might follow suit in ramping up their steel output, after completing their 2021 output cut requirements.