Iron ore creeps higher as China steel margins recover

DALIAN and Singapore iron ore futures rose in a volatile session on Tuesday (Aug 2), as traders focused on improving steel margins in top steel producer China, while weighing prospects of further output cuts.

The most-traded iron ore, for September delivery, on China’s Dalian Commodity Exchange ended daytime trade 1.5 per cent higher at 807 yuan (S$164.7) a tonne, near Monday’s four-week high of 817.50 yuan.

On the Singapore Exchange, the steelmaking ingredient’s benchmark September contract climbed 0.7 per cent to US$115.50 a tonne, as of 0725 GMT, but off the previous session’s four-week peak of US$120.95.

“The recovery in mills’ margins has spurred hopes that (raising) production capacity may resume more quickly than expected,” said Daniel Hynes, a senior commodity strategist at ANZ.

Improved profitability has prompted Chinese mills to restart some blast furnaces, among dozens of such production facilities idled as weak demand in recent weeks had squeezed margins.

Steel margins have improved following a price rebound, and Mysteel consultancy said the momentum could be sustained this month, citing its chief analyst Wang Jianhua.

That could boost demand for other steelmaking ingredients. Dalian coking coal climbed 3.7 per cent, rising for a fifth straight session, while coke advanced 2.1 per cent.

Rebar on the Shanghai Futures Exchange rose 0.5 per cent, hovering near a three-week high. Hot-rolled coil gained 0.2 per cent, while stainless steel climbed 1.2 per cent.

But China’s decarbonisation goals and ailing property sector remain key concerns for iron ore markets.

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Iron ore scales two-week high on China demand hopes

China’s state planning agency, the National Development and Reform Council, and industry group China Iron & Steel Association met last week mandating further crude steel production cuts for the second half of 2022, according to Navigate Commodities.

China aims to cut annual steel production for a second straight year to curb emissions. First-half output was down 6.5 per cent from the same period last year. REUTERS