Chinese futures continued to rally for the second consecutive day despite mixed market outlook over steel demand and tight supply during summer season.
The most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for September delivery, rose by RMB 20 or 2.68% day-on-day to RMB 767 per tonne on Tuesday.
Following the iron ore rally, the steel rebar contract on the Shanghai Futures Exchange gained by RMB 19 or 0.53% at RMB 3,634 per tonne.
Tight supply and lukewarm steel demand during summer
Steel demand typically fell in during the summer season in China, where the hot weather in the north and wet, rainy weather in the south made construction activities difficult.
Thus, the steel margins had narrowed, and end-users were seeking low grade iron ores to lower production costs.
However, the tight portside inventories had supported the iron ore prices, such as the supply tightness for Brazilian ores which is expected to ease with more shipment arrival in August.
The rising coronavirus cases in Brazil also concerned trade participants on whether Vale can fulfill its commitment to maintain its guidance at 310-330 million mt for 2020.
Lower shipments from mining majors
Mining majors shipped a total of 23.31 million mt during the period June 28- July 4, down 4.7% week-on-week, according to Platts cFlow data.
The miners consisted Vale, Rio Tinto, BHP, Fortescue Metals Group and Roy Hill and cFlow stated the decline was typically in early July, as construction activities started to slow down in China during the summer season.
Going forward, the Australian shipments may drop further as Australian ports normally undergo for scheduled maintenance checks in July, after the end of the country’s financial year.
In the meantime, Brazil’s Vale is likely to increase its shipments during the second half of 2020 to maintain its annual guidance for the year.