China steel price decline impacts SGX iron ore market

On July 6th, Singapore iron ore futures experienced a decline, while the Dalian benchmark for this crucial steelmaking ingredient remained stagnant. The dip in sentiment can be attributed to softening steel prices in China, which is being influenced by weak demand. Furthermore, concerns about steel production cuts in China are also impacting iron ore prices, despite the significant monthly gains witnessed in June due to hopes of additional stimulus measures to support China’s post-COVID economic recovery.

Reports indicate that some steel mills in China’s Sichuan province have received verbal notices regarding restrictions on electricity use, as reported by industry data provider Mysteel. This development raises concerns about the future demand for iron ore. Additionally, China’s major steel-producing city of Tangshan has ordered a reduction in output for July due to deteriorating air quality, further affecting iron ore demand prospects.

Unfavorable weather conditions, including heatwaves and flooding in different parts of China, could also hamper steel production. Weather forecasters have issued heat advisories across northern regions, with temperatures expected to exceed 40 degrees Celsius (104 degrees Fahrenheit) in certain areas.

As of 0452 GMT, the most-traded August iron ore contract on the Singapore Exchange recorded a 0.8% decline at $108.75 per metric ton. Meanwhile, on China’s Dalian Commodity Exchange, the most-active September iron ore contract ended morning trade 0.2% higher at 823.50 yuan ($113.58) per metric ton.

Analysts from Sinosteel Futures highlighted that steel production controls are expected to result in a significant decline in iron ore demand. They also mentioned that the supply side is weakly supporting prices due to increased supply from Australia and Brazil.

In contrast, other steelmaking inputs experienced gains, with coking coal and coke rising by 0.5% and 1%, respectively. On the Shanghai Futures Exchange, steel benchmarks dipped, with rebar down by 0.5%, hot-rolled coil by 0.3%, wire rod by 0.9%, while stainless steel gained 0.6%.

Sinosteel analysts noted that the steel market lacks new drivers, and prices continue to oscillate between macroeconomic expectations and underlying fundamentals.