June 17, 2020 / 2:46 AM / a month ago

China rebar steel prices struggle as oversupply risks emerge

* Dalian, SGX iron ore futures also under pressure

* Beijing reimposes coronavirus travel restrictions

By Enrico Dela Cruz

MANILA, June 17 (Reuters) - Chinese rebar futures drifted lower on Wednesday as investors worried about surplus risks, with steel output in the world’s top metals consumer maintaining a robust pace of growth despite signs of weakening domestic demand.

The construction steel product’s most-traded October contract on the Shanghai Futures Exchange dipped 0.6% to 3,572 yuan ($503.58) a tonne in early trade.

The benchmark has so far gained 10% in the second quarter, on track for its best quarterly performance in four, lifted by solid demand from an infrastructure-led recovery programme for the coronavirus-hit Chinese economy.

“At present, the output of finished products continues to rise, and there are signs of weakening...demand” that could lead to an oversupply, analysts at Sinosteel Futures Co Ltd said in a note.

The rate of weekly decline in China’s rebar inventory steadily slowed over the past three weeks, SteelHome consultancy data showed SH-TOT-RBARINV, supporting Sinosteel analysts’ observation that destocking of steel products has decelerated.

Apart from the onset of the rainy season in southern China, which will likely slow construction activity, the local resurgence of coronavirus infections could dampen steel demand.

“Worries of a second wave of COVID-19 does put (China’s economic) recovery on tenuous ground,” commodity strategists at ING said in a note.

FUNDAMENTALS

* China sharply ramped up restrictions on people leaving the capital Beijing on Tuesday in an effort to stop the most serious coronavirus flare-up since February from spreading to other cities and provinces.

* Hot-rolled coil dropped 0.2% while stainless steel rose 0.2%.

* As steel prices struggle, raw materials were also under pressure, with iron ore on the Dalian Commodity Exchange down 0.9% by 0206 GMT, after a two-day advance.

* Iron ore on the Singapore Exchange fell 1.6%.

* Coking coal fell 0.1% and coke dipped 0.4%.

($1 = 7.0932 yuan)

Reporting by Enrico dela Cruz; editing by Uttaresh.V

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