Iron ore futures reversed into losses, as market confidence took a hit from poor economic indicators in August, and extension of steel output cuts to more Chinese provinces.
The futures of Dalian Commodity Exchange (DCE) for September delivery then dropped by 5% day-on-day or down RMB 42.50 to RMB 808/mt, during the day trading session on Tuesday.
The rebar futures, however inched up higher by 0.32% day-on-day or RMB 17 to RMB 5,308/mt, during the day trading session.
Extending steel output cuts across China
Market sentiments turned bearish just before the eve of the peak construction season in China, as trade participants feared of more stringent steel output cuts being conducted to other Chinese regions.
Chinese authority had started production cuts in Guangxi in late August and market expected more output cuts and tighter emission control toward year-end, as China prepared for the Winter Olympic in Beijing.
These concerns dented some market hopes on better steel demand drive during Sep-Oct period, when construction activities increased before slowing down for the winter season.
Lower manufacturing PMI in August
Another crushing blow to market confidence was the lower China’s manufacturing PMI recorded in August, which caused market doubts on the recovery of Chinese economy.
During the month of August, the China’s official PMI fell by 0.3 basis point to 50.1, down for the fifth consecutive month, according to the country’s National Bureau of Statistics.
The decline was attributed to effect of bad weather situations, like the heavy rains and floods in Henan, while the country also experienced a new wave of Covid Delta infections.
Besides the lower manufacturing activities, China’s services industry was not spared from the slowdown in August.
After the non-manufacturing Purchasing Managers’ Index (PMI) recorded to 47.5 points in August, as any reading under 50 points indicated contractionary economic activities in the sector.