March 3, 2017 / 4:40 AM / 9 months ago

China steel futures slump on profit-taking amid mixed sentiment

* Investors cut positions, book profit

* Some expect supply curbs, improving demand to support prices

* But uncertainty over extent of demand recovery weighs on prices

* Iron ore weaker than steel due to increased supplies

SHANGHAI, March 3 (Reuters) - Chinese steel futures slid to one-week low on Friday as investors booked profit amid mixed sentiment and a cloudy near-term outlook in the world’s top producer of the metal.

The most active rebar futures contract on the Shanghai Futures Exchange dropped to a session low of 3,440 yuan ($498.65) a tonne, its lowest since Feb. 24. At the midday break the contract was at 3,487 yuan, down 2 percent.

“Investors have cut positions to reap profit when the market sentiment is mixed. However, I expect rebar to remain fundamentally firm,” said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai.

Beijing has deepened its crackdown on small steel mills - most of which mainly produce rebar and low-end products - in an effort to slash surplus capacity. That has come during a seasonal recovery in demand, helping to underpin prices.

Rebar is mainly used for construction, which usually starts to pick up in China’s spring as temperatures warm.

Some physical traders have increased their restocking activity for rebar over the past few weeks, but analysts have warned that such speculative restocking could hit those traders with big losses if demand fails to improve as expected.

“My concern is that there is a risk if traders are restocking too much while real demand isn’t picking up enough,” said a future trader in Shanghai.

Dalian iron ore futures slumped more than 4 percent to a three-week low of 664.5 yuan a tonne, the lowest since Feb. 10. It was down 3.4 percent to 674.5 yuan by midday.

Iron ore is a primary ingredient of steelmaking, and steel output curbs in some northern regions including top steelmaking city Tangshan have undercut demand for the raw material.

“Iron ore is fundamentally weaker than steel due to increased supplies from both domestic and overseas miners,” CIEC’s Xia said.

Rocketing iron ore prices may prompt Chinese producers to reopen mines shuttered years ago, potentially squeezing the market for marginal foreign suppliers to the world’s biggest importing country, according to industry executives.

Also on the Dalian futures exchange, coking coal and coke dropped 1.8 percent to 1,292 yuan a tonne and 1,776.5 yuan a tonne, respectively.

$1 = 6.8986 Chinese yuan Reporting by Ruby Lian and Josephine Mason; Editing by Tom Hogue

Our Standards:The Thomson Reuters Trust Principles.
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