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Markets

Iron ore futures retreat as China steel margins weaken

  • Rebar on the Shanghai Futures Exchange fell 1.2% by 0307 GMT, while hot-rolled coil slumped 1.6%. Stainless steel outperformed with a gain of 0.9%.
Published January 19, 2021
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MANILA: Benchmark iron ore futures pulled back on Tuesday after hitting four-week highs in the previous session, as weakening steel margins in top steel producer China weighed on raw material prices.

The most-traded May iron ore contract on China's Dalian Commodity Exchange fell as much as 1.8% to 1,042 yuan ($160.68) a tonne.

Iron ore's front-month contract on the Singapore Exchange dropped 1.8% to $167.26 a tonne.

"Steel margins have been falling quickly in recent days. This would motivate some high-cost steelmakers to conduct maintenance and consequently reduce iron ore consumption," said Richard Lu, a senior analyst at CRU consultancy in Beijing.

However, restocking demand ahead of the Lunar New Year holidays is likely to provide some support to prices, along with heavy port congestions in China that have slowed unloading activity, he said.

These "near-term upside risks" helped prop up spot iron ore prices in China, which hit $174.50 a tonne on Monday, close to the nine-year high hit last month, according to SteelHome consultancy.

The sell-off in steelmaking inputs pulled down Dalian coking coal by as much as 4.2% and coke by up to 4.1%.

In particular, falling prices of construction steel rebar are squeezing margins, said Howie Lee, an economist at OCBC Bank in Singapore.

"The recent rise in coronavirus cases in Asia is not helping risk sentiment and commodities are feeling the cold at present," he said. "But we see this as a near-term dislocation and expect prices of commodities to continue rallying through 2021."

Rebar on the Shanghai Futures Exchange fell 1.2% by 0307 GMT, while hot-rolled coil slumped 1.6%. Stainless steel outperformed with a gain of 0.9%.

Meanwhile, miner Rio Tinto reported a 2.4% rise in fourth-quarter iron ore shipments, helped by industrial activity in China, where it said demand remains robust despite fresh COVID-19-induced lockdowns locally.

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