SINGAPORE: Shanghai steel futures fell for a fourth time in five sessions on Thursday, reflecting investors' concern that slowing demand may curb China's record steel production.
Iron ore pulled away from six-month highs after data showed China's economy grew at its weakest pace in nearly three years in the first quarter, potentially cutting demand from Chinese steel mills, the world's biggest buyers of the raw material.
The most-active October rebar contract on the Shanghai Futures Exchange dropped half a percent to 4,321 yuan ($690) a tonne by the midday break on Thursday. Futures fell as low as 4,318 yuan this week, the lowest level since April 5.
Spot steel prices in China have also either dropped or stayed unchanged in recent weeks.
China's crude steel production rose to a record 2.031 million tonnes a day on average in the first 10 days of April, based on estimates by industry group China Iron and Steel Association (CISA) on Wednesday.
"Some of the mills are overestimating the demand recovery. I don't think it has happened yet," said a Shanghai-based iron ore trader.
Mills began producing at a record rate in March, when monthly output hit an all-time high of 61.58 million tonnes, ahead of an expected resumption in construction after the winter lull.
"There is construction going on but not a big scale. That's why demand has not improved sharply," the trader said.
The price of steel billet in China's key Tangshan City in Hebei province was around 3,820 yuan a tonne, mostly unchanged from last week, he said.
FEEL THE PAIN
"There's a high chance that both steel and iron ore prices will fall in the near term," said a physical trader in Singapore.
"If steel production remains high this month, steel prices will definitely drop sharply in May. For some mills which are running at the breakeven line and prices drop, they will immediately feel the pain."
China's steelmakers lost about 1 billion yuan ($159 million) in the first quarter, compared with a profit of 25.8 billion yuan a year earlier, the China Iron and Steel Association said.
Australian miner Fortescue Metals Group Ltd said it was expecting continued strong demand for iron ore from China, which should help keep prices between $140.50 and $149.50 a tonne for the next year or two.
Benchmark iron ore with 62 percent iron content dropped 0.5 percent to $148.50 a tonne on Wednesday, according to Steel Index. The price hit a near six-month high of $149.40 last Friday.
Global miner BHP Billiton sold 62.7-percent grade Newman iron ore fines at $151.26 a tonne and 57.5-percent grade Yandi fines at $136.61 per tonne at a tender late on Wednesday, little changed from a previous deal, traders said. Prices include freight costs.
Brazil's Vale is holding a sale tender for 117,500 tonnes of 62.5-grade sinter feed on Thursday, and traders expect the price to stay near the last done deal of $148 a tonne, cost and freight.
There are also lower grade Indian cargoes from Goa on offer via tender, said the Shanghai trader, comprising 57- and 59-grade fines and lumps.
With the last done deal for 57-grade Indian fines at $128 a tonne and close to $130 for 59-grade lumps, "prices are already very high."
"We will bid for these cargoes but we're not sure we will get them," he said.