Iron ore falls as demand weakens amid optimistic signs

SINGAPORE: Dalian iron ore futures prices fell for a second straight session on Wednesday on weakening steel demand, although better-than-expected factory data in top consumer China capped losses.

The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) traded 0.94% lower at 786.5 yuan ($112.55) a metric ton as of 0247 GMT, though it is up 9.71% this year.

In contrast, he benchmark February iron ore on the Singapore Exchange traded 0.07% higher at $105.75 a ton, gaining 10.12% so far this year.

Domestic steel demand has been declining rapidly month-on-month, said Chinese brokerage Everbright Securities, adding that it expects the trend to continue.

“The recent market rally was driven by sentiment, but the rapid decline in domestic steel demand is expected to dominate prices in the medium term”, the broker added.

The sentiment was corroborated by China Iron & Steel Association (CISA) who said that construction halts caused by cold weather across northern China as well as signs of weakening activity in major downstream industries will continue to drag demand.

Prices were also driven down by rising inventories. Total stocks of imported iron ore sintering fines at 64 Chinese blast furnace steel producers was up by 554,700 tons, or 4.6%, from December 24, data from Mysteel showed.

However, China’s Purchasing Managers’ Index (PMI) showed unexpected growth in December, snapping eight straight months of decline.

The manufacturing purchasing managers’ index (PMI) rose to 50.1 in December from 49.2 in November, the National Bureau of Statistics’ survey showed on Wednesday, above the 50-point mark separating growth from contraction.

It beat analysts’ forecast of 49.2 in a Reuters poll.

This is an optimistic sign for China’s manufacturing sector, which is now its largest consumer of steel.

Other steelmaking ingredients on the DCE were mixed, with coking coal and coke up 0.23% and down 1.46%, respectively.

Steel benchmarks on the Shanghai Futures Exchange were mixed.

Rebar lost 0.54%, hot-rolled coil fell 0.52%, wire rod loss 0.56% and stainless steel firmed 0.23%.