* Shanghai rebar hits lowest since May 16
* Iron ore pulls back further from record high
* Construction steel demand sluggish during summer
* Iron ore stocks at Chinese ports shrink further (Recasts, adds closing prices, milestones and graphics)
By Enrico Dela Cruz
MANILA, June 3 (Reuters) - Chinese steel and steel-making raw materials fell on Monday, with construction material rebar hitting its lowest in more than two weeks, as a slew of soft data stoked concerns about demand in the short term.
The benchmark October 2019 rebar contract on the Shanghai Futures Exchange lost as much as 1.9% to 3,699 yuan ($535.71) a tonne, its lowest since May 16. It ended the session down 1.6% at 3,707 yuan.
Hot rolled coil, used in cars and home appliances, lost as much as 1.8% to 3,569 yuan a tonne, its lowest since April 4, before closing 1.5% lower at 3,577 yuan.
A contraction in sales volume and new orders in May points to a “poor steel demand outlook”, said Helen Lau, a metals and mining analyst at Argonaut Securities in Hong Kong.
China’s factory activity last month shrank more than expected, an official survey showed on Friday, heaping pressure on Beijing to roll out more stimulus to support an economy hit by a bruising trade war with the United States.
“China’s steel PMI (Purchasing Managers’ Index) slipped to the contraction zone along with China’s official manufacturing PMI,” Lau said. “We expect steel companies’ profitability will quickly deteriorate going forward.”
And, with the onset of summer in China, a period when construction activity usually slows, the outlook for rebar consumption is even more bearish.
Such expectations pulled down prices of steel-making raw materials, with the most-traded September 2019 iron ore contract on the Dalian Commodity Exchange falling 3.5% to 709 yuan a tonne.
The iron ore benchmark has fallen 7.6% since hitting a record high on May 28 at 774.5 yuan a tonne.
“Weaker margins remain our key concern as mills contend with weakening steel prices, whilst raw material prices remain elevated,” said Hui Heng Tan, a research analyst at Marex Spectron.
Dalian coke erased some losses to close 3.9% lower at 2,098.5 yuan a tonne. It slid as much as 4.4% to 2,086.5 yuan a tonne earlier in the day, its lowest since May 15.
Coking coal lost 2.1% to 1,369 yuan a tonne.
While a slowdown in steel rates could crimp iron ore demand, some analysts believe prices of the feedstock will remain supported by tightening supply.
As seaborne arrivals have declined, mainly due to limited supply from Brazil, and with the recent spike in demand, iron ore inventory at Chinese ports fell further last week.
As of last Friday, port stockpiles stood at 124.9 million tonnes SH-TOT-IRONINV, the lowest since February 2017, based on the latest data compiled by SteelHome consultancy.
“The likelihood of supply-side issues persisting longer than expected are building in the iron ore market,” commodity strategists at ANZ said in a May 30 note.
With Brazilian miner Vale SA’s output constrained as a result of mine closures in the wake of a fatal tailings dam collapse in January, ANZ expects the iron ore market to face a deficit of 45 million tonnes (mt) this year.
“The real change occurs in 2020, where the deficit has been increased from 18mt to 33mt,” ANZ said.
($1 = 6.9048 yuan)
Reporting by Enrico dela Cruz; Editing by Joseph Radford and Subhranshu Sahu