SHANGHAI: Chinese iron ore futures inched higher on Tuesday, but the rebound was likely to be curbed by expectations that demand in the world's top consumer would slow amid a supply glut.
China's government will cut crude steel capacity in the world's biggest producer by 100-150 million tonnes, reinforcing concerns over demand for iron ore, which has also been hit by rising supplies from Australia and Brazil.
"Iron ore remains in a weak position due to large port inventories and the government's resolution to cut steel capacity," said Bai Jing, an analyst with Galaxy Futures in Beijing.
The most-active May iron ore on the Dalian Commodity Exchange traded up 0.6 percent at 318 yuan ($48.33) a tonne by close. It earlier touched a one-week low of 310 yuan a tonne.
Brazil's Vale SA, the world's largest iron ore exporter, may reopen its Tubarao port after a court-ordered shutdown last week on pollution concerns, easing supply risks.
The port handles about a third of Vale's more than 300 million tonnes of annual iron ore exports.
Separately, steel demand in China is expected to improve in the second quarter when construction activity picks up, while supplies keep contracting due to Beijing's fight against overcapacity, giving a modest lift to prices.
"Steel output fell quickly as mills cut production amid stagnant sales and shortage of cash flow, so we do not see any downside risks; meanwhile, demand will pick up from the current level, so the May contract looks relatively firm," Bai added.
The most-traded May rebar on the Shanghai Futures Exchange closed up 0.2 percent at 1,845 yuan a tonne.
"Steel demand will surely be better than now due to seasonal factors, so prices may rise after the Chinese new year holiday,"
said a trader with a Shanghai-based fund.
But steel prices are likely to remain volatile for now as trading activity fades ahead of the Lunar New Year holiday that falls in early February.
Comments
Comments are closed.