Iron ore futures ended the week in correction as steel demand softened on lower downstream consumption.
The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange dropped by 2.13% or RMB 18 day-on-day to RMB 827.50 per tonne on Friday.
Likewise, the steel rebar contract on the Shanghai Futures Exchange also dipped by 1.06% or RMB 40 to RMB 3,747 per tonne.
A weekly drop in steel demand
According to Reuters, China’s demand for steek products had fallen by 1.3% week-on-week based on steel production and inventory data from Mysteel consultancy.
Due to drop of steel demand, ANZ Research expects Chinese steelmakers to lower their production for the second half of the year to protect steel margins, which may undermine iron ore prices in due process.
Besides, the supply tightness among Chinese port inventory seemed to have eased with Mysteel recording an 2.51% weekly increase to 113.25 million mt for the week ended in July 24, after the surveying 45 major Chinese ports.
More HRC demand in Q3
Despite the weekly drop in steel demand, some trade participants are expecting hot-rolled coil market to remain robust in Q3.
It was due to falling HRC inventories in major hubs like eastern Shanghai and southern Lecong since April, indicating strong consumption for the construction materials.
According to local traders, the HRC inventories in Shanghai and Lecong dropped 52% and 38%, respectively, from their peaks in early April to around 0.34 million mt and 0.62 million mt as of July 22.
Furthermore, the market participants expected China’s manufacturing sector to perform better in H2 as compared to H1, while supply of HRC remained limited as no new hot-strip mills will be commissioned until late 2020.