Chinese futures closed the week on positive note after a rally at afternoon session as China’s port inventory dropped to the lowest level in four years.
Thus, the most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for September delivery, rose by 1.90% day-on-day to RMB 777 per tonne on Friday.
The steel rebar contract on the Shanghai Futures Exchange, hiked up slightly by 0.92% day-on-day to RMB 3,626 per tonne.
Huge drawdown of port inventory
According to mysteel, the iron ore port inventory dropped to 106.9 million tonnes for the week ended 12 June 2020, down 56,000 or 0.5% week-on-week, which was a record-low since October 2016.
The low port inventory was due to Chinese buyers’ preference for purchasing portside iron ores instead of seaborne cargoes to meet steel demand.
Apparently, the Chinese buyers tend to seek for portside alternatives of lower grade low alumina ores rather than securing Brazilian Blend fines (BRBF) at much higher premiums.
Heavy rains to affect steel demand
Despite the better iron ore consumption at ports, the steel demand is slated to fall in southern China in view of the heavy rains.
Over 2.6 million people from eleven provinces were affected, including Guangzhou, one of the manufacturing hubs of China, where torrential rain and flood had disrupted transportation and logistics.
These led to lower trading volume of construction steels at 190,900 mt per day on Thursday, which was under the average threshold of 200,000 mt per day, thus indicating lower demand for building materials like rebar, wire rod and bar-in-coil.