Iron ore futures ended the week on record-breaking rally, which might challenge the RMB 1,000/mt mark at this bullish market momentum.
The most-traded iron ore for January 2021 delivery on China’s Dalian Commodity Exchange surged by 4.24% or RMB 39.50 day-on-day to RMB 972/mt on Friday.
The steel rebar contract on the Shanghai Futures Exchange, however moved rather flattish and booked a small gain of 0.13% or RMB 5 day-on-day to $3,900/mt.
Better demand on high steel margins
The iron ore rally was driven by good steel margins, while supply concerns also resulted in the price upticks.
According to trade sources, the China’s stimulus package and better Q4 global steel outlook from the rest of the world, had driven steel prices and raw materials higher on pent-up demand.
Meanwhile, there was also some supply concern over Vale’s lesser output guidance for 2020, while the output guidance of 315-335 million mt for 2021 were mostly under market expectation after factoring in Brazilian rainy season and maintenance period of mining complexes.
Going forward, some market participants expected lower margins for long steel products like steel billet and rebar prices, due to lesser construction activities during winter.
However, the demand for flat steel products remained healthy, in view of better automobile and manufacturing demand in China.
Higher mills’ inventories indicate slowing demand ahead
Chinese mills’ steel stocks grew for the second consecutive week over the Nov 26 – Dec 2 period, signalling a slowdown in steel demand.
According to Mysteel, the Chinese steelmakers’ stockpiles of rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate, reached 5.2 million mt as of Dec 2, up 1.4% on-week.
The high stockpiles then resulted the drop of rebar prices, as the HRB400 20mm dia rebar price went down by RMB 98/mt on-week to RMB 4,076/mt as of Dec 2.
So far, the lower construction activities had attributed to the declining prices, due to the colder weather conditions in northern China. In the meantime, the recent rally in iron ore prices may also further reduce steel margins, especially for long steel products.