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Dalian iron ore futures surge 6% on supply crunch fears

Beijing

CHINA'S iron ore futures surged 6 per cent on Tuesday on expectations that big miners will be unable to expand production to meet high demand, with steel output set to remain high in coming months.

The most-traded iron ore futures on the Dalian Commodity Exchange hit a daily upper-trading limit with a 6 rally in the afternoon session at 760.5 yuan (S$150.17) a tonne.

The most-traded iron ore futures on the Dalian Commodity Exchange were up 3.9 per cent at 745.5 yuan (S$147.17) a tonne, having risen as much as 4.2 per cent to 747.5 yuan earlier in the morning.

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China's iron ore imports rebounded in May from an 18-month low in April, but were still well down on the same month last year, as disruptions to output in Brazil and Australia hampered shipments.

While Chinese steel prices have eased recently on concerns about longer-term demand, they are still at levels where mills are making profit.

"Tight supply is unlikely to be eased in the short term, but demand for iron ore will be robust despite the moderation of profit margins at steel mills," said analysts from Huatai Futures in a note.

Inventory of imported iron ore at Chinese ports has fallen to 121.6 million tonnes, its lowest level in two and a half years, data from SteelHome showed.

Meanwhile, utilisation rates at steel mills across China stood at a relatively high 71.44 per cent last week as of June 7, data compiled by Mysteel consultancy showed, underlining strong demand for the ferrous metal, although mills in the top steelmaking city of Tangshan have been ordered to trim output in June.

Benchmark Shanghai rebar prices rose 3.5 per cent to 3,833 yuan a tonne, while hot-rolled coil, a manufacturing grade steel sheet, advanced 2.7 per cent to 3,655 yuan.

Steel stocks at Chinese traders continued to fall last week, down 1.2 per cent to 10.89 million tonnes, with rebar inventory at 5.39 million tonnes and hot-rolled coil at 2.09 million tonnes, Mysteel data showed.

However, Baoshan Iron & Steel, the listed arm of China's top steel maker, said on Monday it will cut hot-rolled coil prices for July delivery by 100 yuan per tonne, a sign of waning demand.

Other steelmaking raw ingredients also edged up alongside rising steel prices.

Dalian coking coal gained 2.8 per cent to 1,437 yuan a tonne and coke futures rose 3.7 per cent to 2,208.5 yuan.

US President Donald Trump on Monday said he was ready to impose another round of punitive tariffs on Chinese imports if trade talks stall with China's President Xi Jinping at a Group of 20 summit later this month, which would cloud outlook of steel demand in the second half of this year. REUTERS