China's steel futures fell the most in about a month on Thursday and Dalian-traded iron ore also dropped after a private survey pointed to a weak manufacturing sector, stoking concern over the economic outlook for the top user of the two commodities.
China's factory activity shrank for a second straight month in February, a survey by HSBC/Markit showed with its Purchasing Managers' Index hitting a seven-month low of 48.3. The news sent risk assets from commodities to equities lower.
Weaker steel prices may sour appetite again among traders and Chinese steel producers for spot iron ore cargoes, and likely to drag prices back to seven-month lows reached last week.
"This is really quite worrying," said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.
"This means any seasonal recovery in steel demand when construction picks up from March will not be as strong as before because overall economic activity is slowing down."
The most briskly traded rebar for May delivery on the Shanghai Futures Exchangewas down 1.1 percent at 3,399 yuan ($560) a tonne by midday, just within striking distance from a record low of 3,380 yuan reached on Jan. 10.
The percentage drop is also the steepest for a day since Jan. 21.
At the Dalian Commodity Exchange, the most-active May iron ore contractfell 0.8 percent to 856 yuan a tonne.
Steel products held by Chinese traders stood at 19.8 million tonnes as of Feb. 14, the highest level since May last year, based on data from industry consultancy Mysteel.
The increase was largely due to traders restocking ahead of the Lunar New Year this month, although with demand not picking up as they had expected and prices falling, they might soon run down their stocks.
"Traders will soon destock since it will be very risky to keep such a high level of stocks. If they continue to restock there will be a lot of supply in the market which will send prices even lower," said Lau.
Iron ore for immediate delivery to China <.IO62-CNI=SI> slipped 0.4 percent to $123.90 a tonne on Wednesday, according to data compiler Steel Index, cutting short a rebound from a seven-month low of $120 reached last week.
A mountain of imported iron ore stocks piled at Chinese ports has curbed buying interest in the spot market. The inventory topped 100 million tonnes last week, the first time it breached that level since July 2012.
A growing use of iron ore as a collateral to secure loans in China where credit access is tight has helped bloat the stockpiles.
"Given the low value of iron ore per tonne, we'd be surprised if there was much more than a few million tonnes involved in these sorts of transactions, but it highlights how tight credit currently is," Commonwealth Bank of Australia said in a note.
China's factory activity shrank for a second straight month in February, a survey by HSBC/Markit showed with its Purchasing Managers' Index hitting a seven-month low of 48.3. The news sent risk assets from commodities to equities lower.
Weaker steel prices may sour appetite again among traders and Chinese steel producers for spot iron ore cargoes, and likely to drag prices back to seven-month lows reached last week.
"This is really quite worrying," said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.
"This means any seasonal recovery in steel demand when construction picks up from March will not be as strong as before because overall economic activity is slowing down."
The most briskly traded rebar for May delivery on the Shanghai Futures Exchange
The percentage drop is also the steepest for a day since Jan. 21.
At the Dalian Commodity Exchange, the most-active May iron ore contract
Steel products held by Chinese traders stood at 19.8 million tonnes as of Feb. 14, the highest level since May last year, based on data from industry consultancy Mysteel.
The increase was largely due to traders restocking ahead of the Lunar New Year this month, although with demand not picking up as they had expected and prices falling, they might soon run down their stocks.
"Traders will soon destock since it will be very risky to keep such a high level of stocks. If they continue to restock there will be a lot of supply in the market which will send prices even lower," said Lau.
Iron ore for immediate delivery to China <.IO62-CNI=SI> slipped 0.4 percent to $123.90 a tonne on Wednesday, according to data compiler Steel Index, cutting short a rebound from a seven-month low of $120 reached last week.
A mountain of imported iron ore stocks piled at Chinese ports has curbed buying interest in the spot market. The inventory topped 100 million tonnes last week
A growing use of iron ore as a collateral to secure loans in China where credit access is tight has helped bloat the stockpiles.
"Given the low value of iron ore per tonne, we'd be surprised if there was much more than a few million tonnes involved in these sorts of transactions, but it highlights how tight credit currently is," Commonwealth Bank of Australia said in a note.
