Chinese prices of steel and its raw materials iron ore and coking coal slumped to multi-week lows on Friday and marked their steepest weekly losses in months, pressured by slower demand and S&P’s downgrade of China’s credit rating.
A selloff in steel futures spilled over to prices of its raw materials, pulling back further after this year’s sharp rally largely fueled by China’s supply-side reform aimed at cutting overcapacity.
The most-active rebar contract on the Shanghai Futures Exchange closed down 4.5 percent at 3,554 yuan ($539) a tonne, after earlier hitting its weakest since July 31 at 3,527 yuan.
The construction steel product fell nearly 6 percent this week, its biggest such drop since December 2016.
The most-traded iron ore contract on the Dalian Commodity Exchange fell as far as 463.50 yuan per tonne, the lowest since July 17. It lost 8 percent for the week, its deepest since early May.
“Demand for iron ore is expected to weaken in winter because steel factories will cut production and iron ore supply will rise as global miners produce more during the last quarter of the year,” said a trader in Jinan in China’s eastern Shandong province.
China has ordered mills in its main producing areas including the northern Hebei province to reduce output by up to half during winter to improve air quality.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB tumbled 5.1 percent to $66.09 a tonne on Thursday, the lowest since July 14, according to Metal Bulletin. The spot benchmark has fallen 8.4 percent this week, the most since early May.
S&P Global Ratings’ downgrade of China’s long-term sovereign credit rating on Thursday also soured investor sentiment towards commodity futures, with base metals lead, nickel and zinc sold off as well.
The downgrade by S&P which cited increasing risks from China’s rapid build-up of debt, comes less than a month ahead of the twice-a-decade Communist Party Congress.
Coking coal and coke futures were not spared from the selloff, and Zhang Min, analyst with China Sublime information group, said S&P’s move had further weakened sentiment towards both commodities already hit by softer demand.
“Weak steel prices and high inventory of coal supplies as well as steel products point to lukewarm demand,” said Zhang.
Coking coal in Dalian ended 4.9-percent lower at 1,210.50 yuan a tonne and coke fell 5.4 percent to 2,032 yuan. Coking coal has lost more than 10 percent this week, and coke has dropped over 11 percent, the steepest for both since April. ($1 = 6.5912 Chinese yuan)