Iron ore futures fell on Tuesday due to market concerns over narrowing steel margins and high raw material costs.
Thus, the most-traded iron ore for January 2021 delivery on China’s Dalian Commodity Exchange dropped by 1.48% day-on-day to RMB 827.50 per tonne on Tuesday.
Likewise, the steel rebar contract on the Shanghai Futures Exchange fell by 1.88% to RMB 3,594 per tonne.
Steel margins squeeze by high raw material costs
According to Mysteel, Chinese steel margins were reduced by higher raw material costs despite peak steel demand season.
For instance, the average margin for rebar had reduced to RMB 25/mt in August as compared to RMB 43/mt in previous month.
Thus, some trade sources deemed the low margins insufficient to offset the high steelmaking costs despite an uptick in rebar prices which grew by RMB 53/mt on month to RMB 3,858/mt as of August 31.
Similarly, the medium plate margin also fell by RMB 59/mt month-on-month to RMB 89/mt in August.
However, the margins of hot-rolled coil were an exception as it had better margin growth by RMB 13/mt on-month to RMB 163/mt, due to China’s robust automobile sector.
Better lump demand for upcoming winter season
Iron ore lump had been attracting more buying interests due to higher utilization as mills comply with sintering cut in Tangshan.
Moreover, many Chinese steel mills expected stricter sintering output cut for the upcoming winter season and started to restock lump ahead.
Going forward, more seaborne lump purchases are expected, due to low lump inventory levels among the river stocks in China.