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SHANGHAI: Iron ore prices retreated on Friday, as lower-than-expected hot metal production and a persistent climb in portside inventories in top consumer China weighed on market sentiment.

The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) ended morning trade 1.52% lower at 873.5 yuan ($121.45) a metric ton.

The benchmark April iron ore on the Singapore Exchange was 2.16% lower at $114.2 a ton, as of 0359 GMT. Average daily hot metal output dropped for a third straight session by 0.3% week-on-week to 2.22 million tons, as of March 8, while stocks at major ports surveyed climbed by 2% on the week to 141.51 million tons, the highest since February 2023, data from consultancy Mysteel showed.

“Lower hot metal output weighed on sentiment, contributing to price fall, and we believe the key is downstream steel demand recovery,” said Cheng Peng, a Beijing-based analyst at Sinosteel Futures. “If downstream demand does not pick up, higher hot metal may result in more steel products, which will in turn pressure ore prices.” Traders had expected production in hot metal to pick up this week, but a lower number left them disappointed, analysts said. Concerns of a potential further decline in ore demand in the coming weeks also soured sentiment.

Several steel mills in southwestern China’s Yunnan province planned to cut steel production in March to curb loss, according to a document issued by the provincial steel association on Thursday, reducing construction steel products by a total of around 500,000 tons. Reuters could not independently verify the authenticity of the document.

The Yunnan Iron and Steel Association did not immediately respond to a Reuters’ emailed request for comment. Crude steel output in Yunnan accounts for around 2% of China’s total in 2023, official data showed. Other steelmaking ingredients on the DCE declined, with coking coal and coke down 0.29% and 0.95%, respectively.

Steel benchmarks on the Shanghai Futures Exchange were mixed. Rebar lost 0.67%, hot-rolled coil slipped 0.49% and wire rod fell 0.75%, while stainless steel gained 0.62%.

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