MANILA: Dalian iron ore futures tumbled on Wednesday to their lowest in 16 weeks, while a sell-off resumed in Singapore, as worries grew about an oversupply of steel in China, the world’s biggest producer of the manufacturing and construction material.
Benchmark September iron ore on China’s Dalian Commodity Exchange slumped as much as 5% to 716.50 yuan ($106.67) a tonne, extending its losses to a ninth consecutive session to hit the lowest since March 1. The steelmaking ingredient’s front-month July contract on the Singapore Exchange fell as much as 4.7% to $109.50 a tonne, after a one-day rebound from an eight-session sell-off. Iron ore has wiped out its 2022 gains in Singapore. In the spot market, the benchmark 62%-grade material bound for China traded at $117.50 a tonne on Tuesday, based on SteelHome consultancy data, rebounding from a six-month low of $115.50 a tonne hit the day before.
“Markets are particularly worried that demand growth expectations linked to China’s pledge to boost infrastructure investment may not materialise, especially with China’s zero-COVID policy still in play,” said Commonwealth Bank of Australia analyst Vivek Dhar. Worries remain about renewed restrictions, which have dampened overall domestic demand, as China continues to detect new coronavirus cases day after day, including in Beijing and Shanghai.
Disruptions to construction activity caused by heavy rains in some parts of China have also led to the piling up of steel inventory, further squeezing profits of mills and prompting them to idle blast furnaces to cut losses.
“Doubts over China’s future steel demand growth has meant that markets could no longer ignore current market conditions of oversupply in China’s steel sector,” Dhar said. Construction steel rebar on the Shanghai Futures Exchange fell 1.3%, while hot-rolled coil dipped 1.1%. stainless steel rose 0.6%. Dalian coking coal gained 0.2%, but coke - another steel input - dipped 0.9%.