Shanghai steel futures hit one month lows on Thursday ahead of a week-long Lunar New Year break on worries that a new coronavirus outbreak in the country would hit construction activity.
The Shanghai Futures Exchange's most-traded steel rebar contract closed down 1% to 3,500 yuan ($506.95) per tonne on Thursday after hitting its lowest level since Dec. 26 earlier in session. Shanghai's hot-rolled steel coil, used in cars and home appliances, also hit a one-month low on Thursday, closing 0.8% lower at 3,521 yuan.
"The spreading coronavirus in China is raising concerns that the busy construction period following the Lunar New Year will be delayed," ANZ Research wrote in a note, as China's construction season tends to start after holidays.
"Construction activity has been positive for the steel and iron ore sector. However, any disruption at this peak time could rattle the fragile recovery that emerged in December," it added.
China has confirmed 571 total cases and 17 deaths stemming from the outbreak of the coronavirus, which is believed to have emerged late last year from illegally traded wildlife at an animal market in the central Chinese city of Wuhan.
The benchmark iron ore futures on the Dalian Commodity Exchange with May expiry also dropped on Thursday, falling 2.3% on Thursday to close at 649.5 yuan per tonne. Spot prices of the benchmark 62% iron-content ore, as tracked by SteelHome consultancy, fell by $0.4 to $96.8 per tonne on Wednesday.
China's markets will be closed for a week from Friday for Lunar New Year holiday. Stainless steel futures on the Shanghai Futures Exchange for February 2020 delivery fell 1.1% to 13,870 yuan per tonne.
Dalian coking coal and Dalian coke both fell 0.4%. The coking coal contract closed at 1,213.5 yuan per tonne, while coke was at 1,832 yuan per tonne.
China's second-biggest steelmaker, HBIS Group, said it secured two letters of credit to purchase iron ore from Brazil's Vale in a 200 million yuan contract denominated in the Chinese currency. The London Metal Exchange said it plans to launch a euro-denominated hot-rolled coil steel contract in the second half of 2020, but does not currently have active plans for manganese or ferrochrome contracts.
About two-thirds of China's provinces, regions and municipalities have cut their 2020 growth targets from last year, despite easing trade tensions with the United States, reinforcing expectations of a further slowdown in the world's second-largest economy.