Chinese futures remained almost flat on limited market activity as buyers prepared for lower steel demand during rainy season.
As such, the most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for September delivery, dipped slightly by 0.59% day-on-day to RMB 759 per tonne on Thursday.
Similarly, there was not much movement in the steel rebar contract on the Shanghai Futures Exchange, which fell slightly by 0.17% day-on-day to RMB 3,596 per tonne.
Build-up of rebar inventory for rainy season
The weakness in the paper market may be due less construction activities in southern China, where rainy season slowed down steel demand and prompted a buildup of rebar inventories.
According to trade sources, the construction steel inventories were heard to stock up 30% higher than previous year in Guangzhou. Similar trend occurred in Hangzhou too, where rebar inventories rose by 116% year-on-year.
There were also high hot-rolled coil (HRC) inventories recorded in Shanghai, up 65% higher on year due to wet weather that affected manufacturing activities as well.
Peak is over in May?
The recent flattish iron ore price movement prompted some market participants to believe that the steel demand peak was over in May and expected more weakness in June.
Thus, they expected the steel margins to flatten and dip gradually over July and August after weaker steel demand in June, due to the rainy season in China.
In the meantime, Jimblebar fines (JMBF) has gained much popularity among Chinese end-users recently. This was due to the recovery in its quality at almost above 60% Fe level as the miner resolved their issues for autonomous mining operations.