SINGAPORE: Iron ore futures dipped on Friday as imminent steel production cuts led to tepid demand for feedstock, though high port margins for seaborne iron ore and a tight physical market provided support for prices.
The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) traded 0.27 percent lower at 746.5 yuan (USD108.89) a metric ton, as of 0325 GMT.
The contract has lost 0.99percent this week and 5.86percent so far this month. The benchmark April iron ore on the Singapore Exchange was 0.22percent lower at USD98.15 a ton.
The contract gained 3.59percent this week so far, but is on track for a monthly loss of 4.81percent. Imminent production cuts of steel from March 4 onwards are leading market participants to expect tepid feedstock demand.
Overall supply remains relatively loose, with port inventories still at high levels with limited destocking, a note from the Shanghai Metals Market said on Thursday.
Additionally, crude steel output from China, the world’s top producer and consumer of the metal, dropped 13.9percent to 75.3 million metric tons in January, data from the World Steel Association showed on Thursday.
However, steel production is still in its recovery phase after the Lunar New Year as steel mills restart production, seen through increasing hot metal output, providing a floor under prices.
Port margins for seaborne iron ore are at a high.
That means traders can resell imported cargo at strong profits, signalling a tight onshore physical market, a trader told Reuters. In addition, the widening spread between portside spot prices and seaborne benchmarks underscored the tightness, as spot prices rallied faster than offshore markets, triggering restocking, the trader added, highlighting that prices still have upside potential.
Other steelmaking ingredients on the DCE lost ground, with coking coal and coke down 1.72percent and 1.63percent, respectively. Steel benchmarks on the Shanghai Futures Exchange drifted lower.
Rebar cooled 0.39percent, hot-rolled coil shed 0.62percent, wire rod retreated 1.09percent and stainless steel fell 0.42percent.
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