SINGAPORE (Reuters) - Shanghai steel futures slipped on Monday after rising to near one-month highs in the previous session, as investors’ focus shifted back to sluggish Chinese demand after gains fed by the Federal Reserve’s move last week to bolster the U.S. economy.
A drop in Shanghai rebar futures could fuel a retreat in iron ore prices, which jumped almost 6 percent on Friday to above $101 a tonne.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange dropped 0.2 percent to 3,555 yuan ($560) a tonne by the midday break. Used in construction, rebar surged nearly 5 percent to a session high of 3,623 yuan on Friday, its loftiest since August 20.
Rebar futures ended last week up 4.5 percent, their biggest gain since November 2010 in a rally traders thought was mainly driven by sentiment rather than signs of a pickup in Chinese demand.
“I don’t understand why steel and iron ore prices jumped so much when nothing has changed fundamentally. China’s steel demand is still weak so how can buyers accept these kinds of prices?” said an iron ore trader in Shanghai.
“We have to see a recovery in real steel demand to sustain any price rally.”
Benchmark iron ore with 62 percent iron content .IO62-NI=SI climbed 5.7 percent to $101.60 a tonne on Friday, according to data provider Steel Index.
The trader said his company only managed to sell 25,000-30,000 tonnes of iron ore last week, leaving the firm with about 250,000 tonnes of stockpiles at Chinese ports that it has been trying to sell for months.
“We’re not buying right now because we don’t want to chase prices higher when they could fall sharply so easily at this time, when the outlook for steel demand remains uncertain,” he said.
Despite Friday’s jump, iron ore is still a quarter down from levels in early July. Prices fell to a near three-year low of $86.70 on September 5.
Sellers, however, still pushed up price offers on Monday, hoping to stretch out Friday’s gains. Offers for imported cargoes in China increased by $7 a tonne, said Beijing-based consultancy Umetal.
Weak Chinese demand for steel is aggravated by excess supply as mills continue to maximise production.
China’s daily crude steel output rose 1.2 percent to 1.895 million tonnes in the first 10 days of September from the preceding 11-day period, industry data showed on Monday.
“The sharp rebound in steel prices over the past week will spur steel output to rise, which will be not favorable for the steel market in the near future,” said Hu Yanping, an analyst with industry consultancy Custeel.com.
Longer term, Standard Chartered believes China’s steel consumption will continue to grow until 2025.
“China’s steel industry will undergo structural change over the next decade - demand from the manufacturing sector is likely to increase rapidly, taking a share from the construction sector, the main driver of steel demand in the last decade,” StanChart analysts said in a report.
Similarly, China’s iron ore imports are unlikely to peak until 2025, as declining domestic ore grades will lead to a higher dependence on imports, providing long-term support to prices, the bank said, forecasting the iron ore price at $122 by 2026 from an estimated $127 this year.
Shanghai rebar futures and iron ore indexes at 0404 GMT
Contract Last Change Pct Change
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3145 Chinese yuan)
Editing by Miral Fahmy