Prices of iron ore and steel continued to fall in China on Wednesday, with traders still worried by oversupply and unimpressed by the latest government efforts to stimulate construction demand in northeastern regions.
"I'm just observing the market to see where I can make a profit. If there are price differences between the Dalian Commodity Exchange and the ports, for example, we can sometimes make money, but right now there isn't much of an opportunity,"
said a trader based in Beijing.
"Right now, the price for iron ore is going down and down,and I personally believe we need to wait until September or October before it goes up again," he said.
On Tuesday, China issued detailed new policy measures aimed at speeding up infrastructure investment in its struggling northeastern rust belt.
While new road and rail projects in the region could
stimulate steel demand, the policy wasn't enough to breathe life into the stagnant iron ore market.
Benchmark 62 percent grade iron ore for immediate delivery into China .IO62-CNI=SI slipped 0.3 percent on Tuesday to end at $93 per tonne, its lowest level in two months and 33 percent lower than at the same time last year.
"A price recovery in iron ore is being held back further by mills that are selling long-term, fixed-price cargoes into the spot market, adding to excess supply," Australia and New Zealand Bank said in a note on Wednesday.
Domestic supplies also remain resilient, with utilisation rates at major Chinese iron ore mines rising in August, according to research published this week by Chinese brokerage GF Securities.
Rebar prices on the Shanghai Futures Exchange ended the morning session down 0.33 percent at 3,003 yuan ($489) per tonne. The most active iron ore contract for September delivery on the Dalian Commodity Exchange finished at 654 yuan a tonne, up 0.31 percent.
Melinda Moore, an analyst with Standard Bank, said the market was "still absorbing over-exuberant steel mill output in the first 10 days of August".
There were signs that China was getting to grips with steel
oversupply in July, when plant overhauls and even closures helped drag average daily steel output down to its lowest level of the year, according to official data.
However, the daily rate remained 3 percent higher than the average in the whole of last year, and China Iron and Steel Association data on Monday showed it had rebounded in August.
Analysts said the scale of the production increase in the first 10 days of the month had taken the market by surprise and suggested that China's efforts to shut down old capacity were not having as big an effect as anticipated.
China's industry ministry has set a September deadline for the closure of nearly 47 million tonnes of steel and iron smelting capacity, but the shutdowns can quickly be offset by larger mills seeking to expand market share. Despite a state crackdown, illegal production also remains a factor.
"Illegal production capacity remains too strong, and as soon as capacity is shut down, illegal capacity comes and replaces it," according to a research note from online steel trading platform GTXH.com.
Source: Reuters