SGX iron ore bounces off 2022 low, but Dalian benchmark still under pressure

MANILA: Singapore iron ore futures rebounded on Tuesday after a run of sell-offs triggered by pessimism over demand from top steel producer China, but prices in Dalian remained under pressure.

The steelmaking ingredient’s front-month July contract on the Singapore Exchange rose as much as 4.3% to $115.70 a tonne, after an eight-session slump that wiped out this year’s gains.

On China’s Dalian Commodity Exchange, the most-traded September iron ore contract was down 1.2% at 763.50 yuan ($114.27) a tonne, after earlier hitting 728.50 yuan, its lowest since March 2. A growing number of Chinese steel producers are idling blast furnaces due to sluggish demand and weak profits, which may persist for some more time as the rainy season disrupts construction activity and COVID-19 lockdown risks remain.

In the spot market, the benchmark 62%-grade iron ore bound for China tumbled by a hefty $10 to $115.50 a tonne on Monday, according to SteelHome consultancy data, the weakest since mid-December. Despite buying interest emerging at low prices in futures markets, supported by recent Chinese macroeconomic data showing signs of an improvement, the overall steel demand outlook remains clouded.

“Solid steel mill output (in May up to early June in China) has kept margins relatively low, leading to a narrowing of Fe pricing spreads,” JP Morgan analysts said in a note. Broadening global recession risks add to the gloomy outlook for China’s mammoth steel industry reeling under pressure to unload its increasing inventory elsewhere amid weak demand at home.

“Recent weak sentiment on ex-China recession risks is a headwind for prices, and we note a likely peak in seasonal Chinese steel output,” JP Morgan analysts said.

“This supports prices softening into year-end.” Rebar on the Shanghai Futures Exchange rose 0.9% after a seven-session slump, while hot-rolled coil gained 0.6%. Stainless steel climbed 2.4%. Dalian coking coal slumped 3% and coke dipped 2%.