Steel futures in China headed lower on Thursday, pressured by expectations that stockpiles in the world’s biggest producer and consumer of the building material will rise further, while domestic demand remained weak.
The most-active construction steel rebar on the Shanghai Futures Exchange, for October delivery, was down nearly 1% at 3,870 yuan ($560.86) a tonne by midday break.
Hot-rolled steel, used in cars and home appliances, slipped 0.4% to 3,801 yuan a tonne.
Steel inventory in China stood at 12.6 million tonnes, as of July 26, the highest level in three months and 27% higher than the year-ago stockpile, said Argonaut Securities analyst Helen Lau.
More steel products may be produced this month amid market talk that China’s top steelmaking city of Tangshan will loosen its anti-pollution production curbs in August, she said.
“Steel inventory may go up further, while domestic demand remains sluggish as the PMI (Purchasing Managers’ Index) leading indicators show,” Lau said.
About 1.34 million tonnes of pig iron will be added to the supply, which will also lead to an additional 2 million tonnes of iron ore demand, if the Tangshan curbs are relaxed as proposed by the local government, she said.
“Therefore, we expect steel prices to be under pressure,” Lau said, adding that iron ore prices should thus remain supported.
