MANILA: Steelmaking raw materials fell in China on Monday, with the benchmark iron ore contract hitting its lowest for this month so far and coke extending its losses into a fifth session, as demand waned amid restrictions on steel production.
The drop in futures mirrored weakness that has prevailed in the physical market since last week, a Shanghai-based trader said.
"The air pollution situation in many areas in China is not that good. I believe there will be another round of restrictions on production for the steel industry," the trader said.
Officials in 28 northern Chinese cities, including in the top steelmaking city of Tangshan, face central government evaluations at the end of March on their performance in curbing air pollution over the past winter.
The most-traded iron ore contract on the Dalian Commodity Exchange, with May expiry, fell as much as 3.5 percent to 595 yuan ($88.53) a tonne, the lowest since Feb. 27.
Other raw materials for steel production fell as well, with Dalian coke dropping as much as 3.0 percent to 1,982.5 yuan. Coking coal slid 2.5 percent to 1,223 yuan.
Tangshan has indefinitely extended the highest level of smog alert, in place since March 1, forcing mills to cut output by 40 percent to 70 percent or even stop production.
Wu'an, another major steelmaking city in Hebei province, has stepped up production restrictions on heavy industries, with output reduced by an additional 10 percent in March.
The most-active steel rebar contract on the Shanghai Futures Exchange, also with May expiry, was down as much as 2.7 percent to 3,680 yuan a tonne. Hot rolled coil fell 1.5 percent to 3,660 yuan.
China's top steelmaking region of Hebei, which includes Tangshan, will cut 14 million tonnes of annual steelmaking capacity both this year and next year as it strives to improve air quality, the province's Communist Party head said last week.
As demand for iron ore remained weak throughout February, supply at Chinese ports continued to rise, reaching more than 147 million tonnes <SH-TOT-IRONINV> as of March 11, the highest since September, based on data compiled by SteelHome consultancy.
"We continue to pick up a further increase in forward supply along with higher arrivals of iron ore into China," said Hui Heng Tan, research analyst at Marex Spectron.
"Overall re-stocking efforts are poor as various sintering cuts in China continue to dampen interest and mills continue to de-stock their available material," Tan said.
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