July 10, 2019 / 4:11 AM / 3 months ago

REFILE-UPDATE 2-Coke leads drop in China steelmaking futures amid weak demand

(Corrects to add dropped word ‘ore’ in paragraph 6)

* Dalian coke hits lowest since July 1

* Hot-rolled coil down as China auto sales dip

* Dalian iron ore edges down after 2-day rise

* Jefferies hikes iron ore forecasts after S&P

By Enrico Dela Cruz

MANILA, July 10 (Reuters) - Steelmaking commodities in China fell on Wednesday, with coke hitting its lowest in more than a week, pressured by weak demand as steel mills hurting from a slump in profit margins sought to reduce their input costs.

Shanghai hot-rolled coil - steel used in cars and home appliances - suffered its worst day in the last six sessions as industry data showed automobile sales in China fell in June.

The most-active September coke contract on the Dalian Commodity Exchange closed down 2.5% at 2,082 yuan ($302.42) a tonne, after dropping as much as 3.1% to 2,068.50 yuan earlier in the day, its lowest since July 1.

Coking coal, the raw material to produce coke, slipped 0.9% to 1,373 yuan a tonne.

Chinese steel mills have been looking to slash input costs by switching to low-quality iron ore, the prices of which have rallied this year to the highest in more than five years amid tight supply, and to cheaper coke.

“Currently, steel mills are making very slim margins because of very high iron ore prices, while steel prices are now declining, so they are trying to reduce their costs,” said Richard Lu, a senior analyst at metals consultancy CRU Group’s Beijing office.

While steel mills have also turned “very slow” in buying coke from the spot market, he said supply remains abundant as major coke makers continue to operate at “relatively high levels of capacity”.

FUNDAMENTALS

* The most-traded Dalian iron ore for September delivery ended down 0.2% at 881 yuan a tonne, after two days of gains.

* The most-active October construction steel rebar contract on the Shanghai Futures Exchange edged down 0.7% to 4,021 yuan a tonne.

* Hot-rolled coil dipped 1.0% to 3,884 yuan a tonne, after industry data on Wednesday showed automobile sales in China fell 9.6% in June from the same month a year earlier, marking the 12th consecutive monthly decline in the world’s largest vehicle market.

* Benchmark spot 62% iron ore for delivery to China, SH-CCN-IRNOR62 was steady at $117.50 a tonne on Tuesday, near a more than five-year high of $126.50 hit on July 3, data compiled by SteelHome consultancy showed.

“Long-term bulls now have quite different views (about iron ore). I think it’s now on the edge of a turning point,” CRU’s Lu said, adding that prices are “too high and corrections are needed”.

Iron ore shipments from Brazil and Australia are likely to improve in the second half of the year, easing the supply tightness gradually in ports across China, he said.

* Jefferies has revised its iron ore price forecasts higher, after S&P raised its price assumptions for this year and the next two for the steelmaking raw material, as it expects a prolonged hit to supply amid mine shutdowns in Brazil.

* Jefferies sees iron ore prices at $98 a tonne in 2020, up from a previous forecast of $85; and $85 a tonne in 2021, from $75 previously.

* A Brazilian state judge on Tuesday convicted top iron ore miner Vale SA for damages caused by the deadly rupture of a tailings dam in January that killed at least 240 people.

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($1 = 6.8844 yuan)

Reporting by Enrico dela Cruz; editing by Gopakumar Warrier and Rashmi Aich

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