Iron ore futures extended gains on Wednesday session, improving from previous trading day position, despite mixed market outlook.
The futures of Dalian Commodity Exchange (DCE) for September delivery then increased by 1.90% day-on-day or up RMB 15 to RMB 802.50/mt, during the day trading session on Wednesday.
The rebar futures also inched up slightly by 0.87% day-on-day or RMB 45 to RMB 5,236/mt, during the day trading session.
Mixed market outlook despite higher global steel output
Some trade participants were more optimistic as the recent Covid Delta infection seemed to have minimum impact on Chinese economy, while other participants disagreed and drew concerns on logistics delays from more stringent checkpoints.
Meanwhile, World Steel Association (WSA) recorded a monthly increase of 3.3% in global steel production to 161.7 million mt in July. However, China’s steel production registered a drop of 8.4% on yearly basis to 86.8 million mt in July, due to its ongoing steel output cut policy.
Nevertheless, the global steel output still indicated a yearly increase of 12.4% to 1.17 billion mt over the Jan-July 2021 period, according to WSA.
High Chinese steel inventories amid slower steel demand
China Iron & Steel Association (CISA) recorded 11.92 million mt of steel inventories among 20 Chinese cities, as of Aug 20, up 63% from level at the beginning of the year.
The high buildup of steel inventories was due to declining steel demand with steel output cuts during the July-August period.
Furthermore, speculative stockpiling also played a part in high inventories, as some traders expected China’s steel output cuts might widen later in 2021, which boost steel prices.
Thus, these factors resulted a five-year high in both flat and long steel inventories in late August, as hot-rolled coil (HRC) inventories went up by 46% from the start of the year to 1.94 million mt in Aug 20, while rebar inventories doubled its volume since the year began.