Shanghai rebar sinks to record low, putting further pressure on iron ore prices

A global glut has dragged spot iron ore prices to below US$45 a tonne this year

PUBLISHED : Thursday, 12 November, 2015, 4:12pm
UPDATED : Thursday, 12 November, 2015, 4:12pm

Shanghai steel futures fell more than 1 per cent to a record low on Thursday, pressured by shrinking demand in top consumer China that has dented appetite for raw material iron ore.

With falling prices seen forcing more Chinese steel mills to either cut output or close, demand from the biggest iron ore buyer is at risk, keeping ore prices lower for longer as top suppliers fight for more market share.

“It’s now getting difficult for any trader who has seaborne cargo to sell before the ship arrives,” an iron ore trader in Shanghai said. “Mills are quite pessimistic about the steel market and they don’t want to take any risk by taking on forward cargoes.”

Construction-used rebar for May delivery on the Shanghai Futures Exchange closed down 1.1 per cent at 1,765 yuan (HK$2,154) a tonne after falling as far as 1,760 yuan. That was the lowest for a most-active contract since the bourse launched rebar futures in 2009.

On the Dalian Commodity Exchange, January iron ore ended flat at 347 yuan a tonne.

A global glut has dragged spot prices to below US$45 a tonne this year, less than a quarter of record highs seen in 2011, forcing many high-cost producers out of the market.

The outlook for iron ore prices remains bearish, Goldman Sachs analyst Christian Lelong said, citing rising port inventories in China and profit margins of Chinese steel mills near a record low amid poor demand.

Lelong said weak construction activity in China during the last quarter of the year was also a key headwind for iron ore prices.

“Moreover, a lack of optimism about 2016 should limit the scale of restocking in steel products in early 2016,” he said in a note.

Benchmark 62 per cent grade iron ore for immediate delivery to China’s Tianjin port stood at US$47.70 a tonne on Wednesday, according to The Steel Index, still near this year’s low of US$44.10.