August 1, 2019 / 8:13 AM / 2 months ago

UPDATE 1-Shanghai steel futures hit 6-week lows on higher inventory, lean demand

* China’s steel inventory at 3-mth high, as of July 26 - analyst

* Inventory may rise further as Tangshan may loosen output curbs

* Dalian iron ore falls as much as 3.7% after a five-day rally (Updates with milestones, closing prices, graphic)

By Enrico Dela Cruz

MANILA, Aug 1 (Reuters) - Steel futures in China headed lower on Thursday amid expectations that stockpiles in the world’s biggest producer and consumer of the building material will rise further, while domestic demand remained seasonally weak.

The most-active construction steel rebar on the Shanghai Futures Exchange, for October delivery, ended the session down 1.6% at 3,846 yuan ($557.64) a tonne, its weakest finish since June 21.

Hot-rolled steel, used in cars and home appliances, slipped 0.9% to 3,781 yuan a tonne, its lowest close since June 21.

Steel inventory in China stood at 12.6 million tonnes, as of July 26, the highest level in three months and 27% higher than the year-ago stockpile, said Argonaut Securities analyst Helen Lau.

Steel production may remain brisk amid market talk that China’s top steelmaking city of Tangshan will extend but loosen its anti-pollution production curbs throughout August.

“Steel inventory may go up further, while domestic demand remains sluggish as the PMI (Purchasing Managers’ Index) leading indicators show,” Lau said.

About 1.34 million tonnes of pig iron will be added to the supply, which will also lead to an additional 2 million tonnes of iron ore demand, if the Tangshan curbs are relaxed as proposed by the local government, she said.

“Therefore, we expect steel prices to be under pressure,” Lau said, adding that iron ore prices should thus remain supported.

Hopes for additional measures from the government to boost demand for steel dimmed as China has ruled out using the property market as a form of short-term stimulus.

FUNDAMENTALS

* Pressure on China’s factories eased a little in July due to growth-boosting steps from the government, but overall manufacturing activity remained in contraction as a trade war with the United States dented export orders.

* The Caixin/Markit Manufacturing PMI readings for July released on Thursday were largely in line with an official gauge that showed factory activity last month shrank at a slower-than-expected pace.

* “While China’s official manufacturing PMI has shown signs of improvement, China’s steel PMI, however, exhibited worsened contraction,” Lau said, citing slower production amid anti-smog output curbs during summer, and poor domestic demand.

* The most-traded iron ore on the Dalian Commodity Exchange , with January 2020 expiry, halted a five-day rally to slump 3.6% to 747.50 yuan a tonne.

* Amid tight supply, benchmark spot 62% iron ore for delivery to China SH-CCN-IRNOR62 jumped 2.5% to $121 a tonne on Wednesday, based on data tracked by SteelHome consultancy, moving closer to its July 3 peak of $126.50, the highest level since January 2014.

* Other steelmaking materials also traded lower, with Dalian coking coal down 0.7% at 1,391.50 yuan a tonne, while coke slipped 2.1% to 2,105 yuan.

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($1 = 6.8969 yuan)

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

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