Iron ore futures ended the week on decline, despite rebounding earlier on the week since the return of Chinese trade participants from the long holidays period.
The futures of Dalian Commodity Exchange (DCE) dropped by 5.12% day-on-day or down RMB 44.50 to RMB 825/mt, during the day trading session on Friday.
The rebar futures also fell by 3.66% or down RMB 180 day-on-day to RMB 4,734/mt, during the day trading session.
Poor economic indicator to signal slow steel demand
The selloff in the futures were linked to the market sentiment of slowing steel demand from recent Chinese economic data.
For instance, the China’s Purchasing Manager’s Index (PMI) for steel industry dropped for the third consecutive month in April, down 3.8 basis points on month to score 40.5.
The reading was computed by CFLP Steel Logistics Professional Committee (CSLPC), the country’s authorized index, according to Mysteel report.
The low reading was due to the lockdown in Chinese cities, which affected the manufacturing supply chains and hence lowered the steel demand and production.
Though, there was some relaxation of the Covid measures in some major cities but more smaller cities like Zhengzhou had tightened Covid controls like ordering residents to work from home this week to contain the virus spread.
High traders’ steel stocks due to lower consumption
Chinese steel stocks also started to rise as the Covid measures had slowed down steel consumption especially in eastern China regions.
According to Mysteel, the inventories of finished stainless steel rose 5.5% week-on-week to 787,661 mt, as of May 5. This was a one-year high in term of steel stocks since March 2021.
Most of the upticks were due to higher stocks found in Wuxi hub in Jiangsu province, eastern China, due to weak demand of steel and increased deliveries to warehouses during the Labour Day holidays period.