Iron ore futures dropped amid market uncertainty over winter stocking activities and slow steel demand.
The futures of Dalian Commodity Exchange (DCE) for January delivery then dipped slightly by 0.70% day-on-day or down RMB 4.50 to RMB 639.50/mt, during the day trading session on Friday.
The rebar futures also went down slightly by 0.25% day-on-day or down RMB 11 to RMB 4,322/mt, during the day trading session.
Recent paper rally fails to reflect physical demand
The market optimism over increased money supply seemed to subside by uncertainty over physical demand of steel in the coming new year.
According to Mysteel, most Chinese steel traders were cautious in stocking up for steel inventories during the winter season, due to the price volatility and slower steel demand.
Thus, this bearish market sentiment may result in lower restocking activities during this winter season, which was common practices among traders and mills to build up inventories for the new year.
Chinese blast furnace utilization dips to three-year low in December
The traders’ concerns for slow demand seemed to find roots on slow blast furnace (BF) capacity utilization rates among Chinese mills during Dec 3-9 period.
According to Mysteel, the BF utilization rates recorded at 74.12% in early December, down 0.67% on-week for the eight consecutive week and the lowest rate since March 2018.
The three-year low rates were attributed to output restriction measures during winter season especially for northern China-based mills and the low steel demand.