Iron ore futures inched up by the end of the week, despite narrowing steel margins and high raw material costs.
The most-traded iron ore for January 2021 delivery on China’s Dalian Commodity Exchange rose slightly by 0.84% day-on-day to RMB 837 per tonne on Friday.
The steel rebar contract on the Shanghai Futures Exchange ended its correction phrase and inched up by 0.14% to RMB 3,665 per tonne.
Narrowing steel margins
The recent rally of iron ore prices had narrowed China’s domestic steel margins, according to Platts.
As such, the domestic rebar margins have almost halved since the start of the September, dropping to $19.83/mt as of Sept. 10, almost to a one-year low.
Likewise, the margins for hot-rolled coil went down to a four-month low at around $21.39/mt on Thursday.
Despite the narrowing margins, there was mixed market outlook as some trade participants believed that iron ore prices had peaked and will correct further to allow some improvement in steel margins.
However, other market participants expect bullish steel demand ahead which may push up iron ore prices further amid the peak construction period of Sep-Oct.
Lower steel mills’ stock for finished product
In the meantime, there was some slower steel production among the Chinese steelmakers due to output restriction imposed on Tangshan over environmental concerns.
Thus, Chinese steel mills’ stocks of finished steel products dropped by 1.2% week-on-week to 6.7 million mt as of Sep 9, according to Mysteel’s survey of 184 steelmakers.
Likewise, lower build-ups were seen among traders’ stock, as finished steel stocks went down 3.400 mt week-on-week, to 23 million mt over the Sep 4-10 period.
According to Mysteel’s data, the mills’ stocks consisted of rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate.