June 4, 2019 / 3:02 AM / 5 months ago

Chinese steel futures extend losses amid high output, demand concerns

* Shanghai rebar falls for sixth straight session

* Hot-rolled coil slumps to lowest in two months

* China’s steel demand seen intact but slower

By Enrico Dela Cruz

MANILA, June 4 (Reuters) - China’s rebar steel benchmark fell for a sixth session on Tuesday, its longest losing streak in seven months, while hot-rolled coil hit a fresh two-month low, after the seasonal demand waned and mills ramped up production in recent weeks.

With steel prices falling, mills’ margins have also narrowed, prompting them to slow down in buying raw materials including iron ore.

Expectations that demand, particularly for construction material rebar in China, will remain weak in the short term with construction activity slowing during the summer season, also weighed on prices.

The most-actively traded October 2019 rebar contract on the Shanghai Futures Exchange fell as much as 1.2% to 3,691 yuan ($534.40) a tonne, its lowest since May 15.

Hot-rolled coil, used in cars and home appliances, dropped as much as 1.7% to 3,557 yuan a tonne, the benchmark contract’s lowest since April 4.

“There’s some downward pressure on prices because the seasonal demand has gradually weakened, and because of the very high output in China,” said Richard Lu, senior analyst at metals consultancy CRU Group’s Beijing office.

Rainy season in some places in China and a “very, very warm” weather in other parts of the country during this time of the year also mean slower construction activity, crimping demand rebar in particular, he said.

Still, he said current steel demand in China remains “okay”.

“I haven’t seen a significant decrease in steel demand. Steel inventories across the supply chain are still decreasing,” Lu said. “It’s really the people’s expectations (the demand will further weaken) that are driving prices lower.”

Such expectations, along with the steel mills’ narrowing margins, have kept a lid on prices of raw materials.

The most-actively traded September 2019 iron ore contract on the Dalian Commodity Exchange was steady at 716 yuan a tonne, as of 0248 GMT, despite lingering concerns about tight supply.

Coking coal edged down 0.2% to 1,374 yuan a tonne, while coke slipped 0.3% to 2,109 yuan.

“Steel mills are now more careful in their purchases of raw materials,” Lu said. “In terms of iron ore demand, steel mills have secured some shipments recently so they are less desperate now (in beefing up stocks).”

Support for iron ore prices, however, is widely expected to remain intact amid the steady decline in stocks at Chinese ports, which as of last week were at their lowest since early 2017. SH-TOT-IRONINV

($1 = 6.9068 yuan)

Reporting by Enrico dela Cruz, Editing by Sherry Jacob-Phillips

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