MANILA: Chinese steel futures dropped for a second straight session on Monday, pressured by high supply that has shrunk profit margins at steel producers and curbed appetite for raw material iron ore.
Crude steel output in the world's top producer is expected to reach a record 923 million tonnes this year, before slipping back to 900 million tonnes in 2019, the China Metallurgical Industry Planning and Research Institute said.
China's iron ore imports fell for a second month in November, hitting 86.25 million tonnes from 88.4 million tonnes in October, government data released on Saturday showed.
The most-active May rebar contract on the Shanghai Futures Exchange closed down 1.8 percent at 3,312 yuan ($482) a tonne.
The benchmark price of the construction steel product has fallen by 18 percent since hitting a seven-year peak of 4,024 yuan in late August.
Apart from iron ore, China's imports of unwrought copper also fell in November from a year ago, and Argonaut Securities analyst Helen Lau said the slowdown in commodity imports reflects slowing Chinese demand.
"The slowing demand and easing consumer prices will provide government room for monetary stimulus and to implement measures to stabilize the domestic economy," Lau said in a note.
Zhong Zhengsheng, chief economist at think tank CEBM Group, agrees that the government may release more stimulus measures next year as the Sino-U.S. trade friction dampens China's exports advantage and weighs on its economy.
"There will also be more pressure on consumption amid a slowing economy and the cooling auto and property markets," he told a conference organised by brokerage GFI Group on Friday.
Profit margins at Chinese steel mills narrowed sharply in November amid plentiful supply as Beijing scrapped blanket production restrictions for winter aimed at tackling smog, instead allowing cities and provinces to set their own output curbs based on emissions.
The most traded May iron ore on the Dalian Commodity Exchange rose 0.9 percent to 473.50 yuan a tonne.
Coking coal gained 0.4 percent to 1,444 yuan per tonne and coke edged up 0.2 percent to 1,984.50 yuan.
Spot iron ore for delivery to China <SH-CCN-IRNOR62> slid 1.5 percent to $66.90 a tonne on Friday, but gained 3.1 percent for the past week, according to SteelHome consultancy.
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