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UPDATE 1-China steel futures recover from 1-week low amid cloudy outlook
March 3, 2017 / 8:16 AM / 9 months ago

UPDATE 1-China steel futures recover from 1-week low amid cloudy outlook

* Some investors expect supply curbs, improving demand

* But uncertainty over extent of demand recovery weighs on prices

* Iron ore weaker than steel due to increased supplies (Adds details throughout, updates prices)

By Ruby Lian and Manolo Serapio Jr

SHANGHAI/MANILA, March 3 (Reuters) - Chinese rebar steel futures regained some lost ground on Friday, after slipping to a one-week low earlier in the session, amid a cloudy outlook for demand in the world’s top consumer of the building material.

The most-active rebar on the Shanghai Futures Exchange closed up 0.2 percent at 3,566 yuan ($517) a tonne after touching a session low of 3,440 yuan, its lowest since Feb. 24.

“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 picking up during the spring in China as temperatures turn warm.

Some physical traders have increased restocking of rebar over the past few weeks, but analysts have warned that traders could end up with big losses if demand fails to improve.

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

Iron ore on the Dalian Commodity Exchange closed 1.5 percent lower at 688 yuan per tonne, after falling as much as 4.9 percent to a three-week low of 664.50 yuan. The contract dropped 2 percent for the week, its second weekly fall.

Iron ore is a primary ingredient of steelmaking, and steel output curbs in some northern regions including in top steel-making city Tangshan have reduced 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.

Spot iron ore prices have risen 17 percent this year, thanks to China’s booming steel market.

As iron ore stayed close to $100 a tonne, Chinese producers are looking to reopen mines shuttered years ago, potentially squeezing the market for marginal foreign suppliers to the world’s biggest importing country.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB rose 1.2 percent to $92.36 a tonne on Thursday, not far below a 30-month peak of $94.86 reached last month, according to data from Metal Bulletin.

$1 = 6.8982 Chinese yuan Reporting by Ruby Lian and Manolo Serapio Jr.; Editing by Tom Hogue and Sherry Jacob-Phillips

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