Dalian Commodities Exchange (DCE) continued to rise for the second consecutive day on 5th November, with a rebound seen at the closing after a morning session slump, reports Freight Investor Services.
Steel bar futures get a boost
The most active iron ore contract for January delivery in DCE experienced a sharp sell-off at the morning session before recovering later at afternoon session to close at RMB 616 per tonne, up 0.82% on-day.
The steel rebar futures in Shanghai Futures Exchange also got a boost with a slight increase of 0.67% on-day to RMB 3,318 per tonne.
Limited rebar margins
Despite the rise in paper market, the steel rebar margins remained limited in October. According to trade source, the steel sector profits did not change much from previous months.
For instance, the profit margins from wire rod sales was almost stagnant since September at around RMB 200 per tonne.
In the meantime, the rebar profits were heard around at RMB 300 per tonne among the North China, while billet profits were estimated around at RMB 100-200 per tonne in Hebei province.
No more stimulus measures
Few trade participants expect any big scale stimulus projects imposed by Beijing policymakers to stimulate the steel and construction sectors in Q4.
Besides, the steel demand typically slowed in the winter season period from November to March period, when production cut was imposed to improve air quality in China.
This year is no different, but some trade participants were anticipating a lenient output restriction ahead and seeking for discounted low-grade iron ores.
Meanwhile, other mills are seeking for high grade iron ore ores for their cost efficiency and in complying with stricter environmental regulations.
The uptick may follow the trade optimism after the a keynote speech given by Xi Jinping, President of China at the Shanghai Expo on 5th November.
Xi pledged that China will give ‘greater importance to imports’, through the removing of tariffs and institutional transaction costs.
Market participants interpreted the Chinese leader’s gesture of having more open trade agreements and expects a positive outcome for the “Phrase one” trade deal between the US and China to go through later this month.
Second restocking for iron ore?
Some trade participants are expecting more iron ore purchases ahead due to shrinking portside inventory in China.
The proposed restock was based on latest data from MySteel consultancy which recorded 126.48 million mt for the week ended on Nov 1, down 1.8 million mt week-on-week across 45 Chinese ports.
This was rather a low level as compared to same period last year when the portside inventory stacked around 139-141 million mt level among the various Chinese ports.
Meanwhile, Carajas fines may get a further price lift as more Chinese mills seek for more of the iron products, which are in short supply currently.
They are likely to use the Carajas fines to mix with low-grade fines, given the flexibility of their blast furnaces to comply with stricter environmental regulation and to lower steel production costs.
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Source: Freight Investor Services