June 23, 2015 / 4:27 AM / 5 years ago

Chinese steel futures dip as traders brace for summer drop in demand

* Shanghai rebar, Dalian iron ore futures both slip on
Tuesday
    * Top producer Shagang announces price cuts

    BEIJING, June 23 (Reuters) - Steel futures in China slipped
0.9 percent on Tuesday, their first day back after a long
holiday weekend, with traders bracing for a seasonal decline in
steel demand that is also set to undermine iron ore prices.     
  
    The most traded rebar contract for September delivery on the
Shanghai Futures Exchange dropped to 2,231 yuan
($359.35) per tonne, inching closer to a record low of 2,218
yuan set last week.
    Major steel producers have started to cut their prices in
anticipation of slowing summer demand. China's top private
producer, Jiangsu Shagang, announced on Tuesday that rebar
prices for late June would be slashed by 70 yuan per tonne.
    Baosteel, China's second-biggest steel producer, announced
cuts of 80 yuan per tonne earlier this month.  
    Iron ore for immediate delivery to China's Tianjin port
.IO62-CNI=SI slipped 0.2 percent tp $60.60 a tonne on Friday,
before the holiday, according to the Steel Index. It fell 6.8
percent over the course of last week, the biggest weekly drop
since early April, with oversupply still the prevailing concern.
    "There are signs that some domestic iron ore miners have
started to resume production as a result of the recent rally,
but many steel mills have suffered losses of up to 200 yuan a
tonne, which will deepen in the summer months," said Xia Junyan,
an analyst with Everbright Futures in Shanghai.
    Iron ore production in China reached 116.66 million tonnes
in May, down 9.9 percent compared to the same month in 2014 but
up 13 percent from April, with producers reacting quickly to the
price recovery. But rising supply and weakening demand meant
that another slump was very likely in the coming months.  
    "We can also tell from the swaps for future months,
highlighting the market expectation that iron ore prices will
enter the downward trend again," Xia said.
    Chinese steel demand normally drops over the summer months
as construction activities slow, but the latest data from the
China Iron and Steel Association showed that production from
major steel mills in the first 10 days of June rose 2.1 percent,
with inventories also rising 3 percent compared to the May 21-31
period. 
    Analysts suggest the rise might be short-lived.            
    "In the absence of any pick-up in construction activity,
negative margins are likely to constrain any growth in steel
production that may emerge from the government stimulus measures
enacted recently," said ANZ Bank in a note on Tuesday.     
  Rebar and iron ore prices at 0340 GMT
                                                                          
  Contract                          Last    Change   Pct Change
  SHFE REBAR OCT5                   2231    -20.00        -0.89
  DALIAN IRON ORE DCE DCIO SEP5      428     -2.00        -0.47
  THE STEEL INDEX 62 PCT INDEX      60.6     -0.10        -0.16
  METAL BULLETIN INDEX             60.02     -1.34        -2.18
                                                                          
                                                                          
  Dalian iron ore and Shanghai rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 
($1 = 6.2085 Chinese yuan)

 (Reporting by David Stanway and Ruby Lian; Editing by Alan
Raybould)
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