Iron ore futures ended the week on high note, despite market sentiment on softer steel demand amid thin steel margins.
The futures of Dalian Commodity Exchange (DCE) for the most-traded September iron ore contract then hiked by 5.13% day-on-day or up RMB 42.50 to RMB 842.50/mt, during the day trading session on Friday.
The rebar futures also gained by 2.59% or up RMB 117 day-on-day to RMB 4,638/mt, during the day trading session.
Chinese steel demand improves with inventory drawdown
There seemed to be some improvement in steel consumption, as mills’ steel inventories dipped slightly by 0.2% week-on-week to 6.99 million mt over May 12-18 period, according to Mysteel.
The drawdown was due to better transport services in the Eastern and Northern China that increased deliveries to traders’ warehouses, while more mills shipped steel products during the period.
Meanwhile, the blast furnace capacity utilization rate among Chinese mills had gained slightly by another 0.38% week-on-week to 88.66% over the May 13-19 period, signaling some better steel demand, according to Mysteel.
Import margins turn positive in May
The import margin or the spread between Chinese portside and seaborne iron ore prices had flipped to positive in May from negative territory in April, which encouraged more seaborne purchases.
As the demand for medium grade fines remained strong among end-users due to cost effectiveness, while products like Jimblebar fines and Mac fines were trading in narrow discounts.
In the meantime, the demand for low grade materials like Indian fines and FMG Super Special fines were improving as well, as most mills tried to reduce costs amid the thin steel margins environment.