MANILA: Dalian iron ore extended losses to a sixth straight session on Friday, putting it on track for its steepest weekly slump in four months, as Chinese steel mills opted to reduce output amid weak profits and deteriorating demand prospects.
The most-traded iron ore, for September delivery, on China’s Dalian Commodity Exchange tumbled as much as 5.7% to 823 yuan ($122.87) a tonne in early trade, its lowest since May 26.
On the Singapore Exchange, the steelmaking ingredient’s front-month July contract dipped as much as 5.1% to $121.45 a tonne, falling for a seventh straight session. Benchmark 62%-grade iron ore’s spot price in China also headed south this week, declining steadily for five business days to a three-week low of $132 a tonne on Thursday, SteelHome consultancy data showed.
“In recent weeks, an increasing number of mills in (China’s) steelmaking hub of Tangshan are opting to undertake maintenance and cut output amid weak margins,” said ANZ senior commodity strategist Daniel Hynes. Some regions have also begun to actively curb production, analysts at Sinosteel Futures said.
The rainy season in many parts of China that usually disrupts construction activity and restrictions put in place to contain COVID-19 outbreaks have hit demand in the world’s top steel producer, squeezing mills’ margins.
Reflecting such sluggish demand, China’s steel inventory has risen this week by 316,700 tonnes to about 22.2 million tonnes, according to Sinosteel analysts.
Adding to steel producers’ burden, they had to pay more for steelmaking ingredients including iron ore following a recent rally. Construction steel rebar on the Shanghai Futures Exchange fell as much as 4%, while hot-rolled coil shed 3.6%, hitting their lowest since Jan. 5.
Shanghai stainless steel dipped 1.5%.
Other steel inputs also fell, with Dalian coking coal dropping as much as 3.9% and coke slumping 3.6% to their weakest since May 27.