Chinese steel prices fell over 2.5 percent on Friday, shrugging off a decline in inventories and having marked their worst week since late March amid concerns that less rigid production curbs this winter will lead to surplus supplies.
Stocks of steel products held by Chinese traders fell for a seventh straight week in the week ending on Nov. 23, down 203,100 tonnes from the previous week at 8.41 million tonnes, according to data compiled by Mysteel consultancy. Stocks hit their lowest level since early January.
Inventory of construction product rebar dropped 3.3 percent to 3.07 million tonnes, while hot-rolled coil stocks dipped 1.9 percent to 2.1 million tonnes.
However, benchmark rebar futures on the Shanghai Futures Exchange closed 2.6 percent lower at 3,623 yuan ($522.02) a tonne, and lost 5.6 percent so far this week, their worst performance since March, amid concerns of a glut.
“A pessimistic outlook persists in the market as investors still expect spot prices to fall further. So in the futures market, people tend to hold off their trade and watch,” said analysts from Huatai Futures.
Weekly utilisation rates at steel mills across China slid 0.3 percentage points from last week to 67.54 percent as of Nov. 23, curbed by temporary production restrictions but still up on around 63.5 percent during same period last week.
China’s top steelmaking province Hebei on Wednesday issued second-level smog alerts to its 10 cities, asking steel mills to further cut output from Nov. 22 on top of the winter production restrictions effective from mid-November until mid-March, 2019.
Unlike last winter, China has allowed cities and provinces to set their own steel output restrictions this year based on their emission levels, ditching across-the-board limits.
Profit margins have dropped drastically, to below 300 yuan a tonne this week from over 800 yuan a month ago, according to an estimate by Jinrui Futures.
“Steel mills have less incentives to replenish their stocks for raw ingredients amid falling prices and shrinking profit margins,” added Huatai Futures analysts.
The most-active iron ore contract for January delivery slumped 4.6 percent to 497 yuan a tonne, the lowest since early October.
Dalian coking coal futures dropped 1.8 percent to 1,340.5 yuan a tonne, while coke prices fell 3.7 percent to 2,188 yuan.
The decline in prices of steel and its raw materials also came alongside a plunge in the stock market amid concerns over China’s economic growth and doubts over chances of President Xi Jingping and U.S. President Donald Trump achieving a de-escalation in the Sino-U.S. trade war when they meet next week.