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UPDATE 1-Shanghai rebar drops for 4th day, weighs on iron ore
May 30, 2013 / 8:03 AM / 5 years ago

UPDATE 1-Shanghai rebar drops for 4th day, weighs on iron ore

* Shanghai rebar drops to near nine-month low

* Iron ore to weaken further to $100/T -traders (Updates Shanghai rebar close)

By Ruby Lian and Fayen Wong

SHANGHAI, May 30 (Reuters) - Shanghai rebar dropped to a near nine-month low on Thursday, stretching its losses into a fourth straight session on steel overcapacity in China, while concerns about a sluggish economic growth in the key consumer also hurt prices.

Traders expect rebar to drop further in the near term as China heads into its seasonally weak steel consumption phase from June. This will drag on prices of the key steelmaking raw material iron ore that hit a more than 7-month low on Wednesday.

The most active rebar futures contract on the Shanghai Futures Exchange hit a session low of 3,420 yuan ($560) a tonne on Thursday, the lowest since early September 2012. It closed at down 1 percent at 3,438 yuan, not very far from an all-time low of 3,376 yuan set in September.

Rebar prices have shed 3.7 percent this week and are down 22 percent from their 2013 peak hit in early February.

“Steel mills are unprofitable and destocking raw material due to worsening surplus and waning demand,” an iron ore trader in Beijing said.

Current steel product inventories in China could be about 6.5 million tonnes higher compared to last year, according to the China Iron and Steel Association (CISA).

CISA has said that overcapacity is the biggest challenge facing the sector, with total crude steel capacity amounting to around 1 billion tonnes, far higher than last year’s total output of 716.5 million tonnes.

This comes at a time when slower economic growth is curbing China’s demand for steel and iron ore.

The International Monetary Fund has cut its growth forecast for China this year to 7.75 percent from 8 percent, citing a weak world economy and exports, adding to concerns that the world’s No.2 economy is losing momentum.

Benchmark 62 percent grade iron ore .IO62-CNI=SI fell 4.2 percent to $112.90 a tonne on Wednesday, the lowest since Oct. 16, 2012, according to data provider Steel Index.

Some traders expect iron ore prices, which are down 22 percent this year, to drop to $100 a tonne or even lower in coming weeks.

The bearish sentiment was reflected in iron ore swaps.

“The June contract was $107.5 on Thursday, down $1 from Wednesday, and there are very few buyers in the physical market,” said Peter Cho, an iron ore derivatives broker with ICAP in Singapore. ($1 = 6.1267 Chinese yuan) (Editing by Muralikumar Anantharaman and Himani Sarkar)

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