China's Steel Output Caps Send Iron Ore Futures Into a Tailspin

Iron ore futures saw a dip on Friday, pushed down by apprehensions around impending steel production limitations and the growing anticipation regarding the absence of economic stimulus updates from China.

The iron ore contract that was most traded in September on the Dalian Commodity Exchange of China concluded the daytime trade with a decrease of 2.68% at 834.5 yuan ($116.60) per metric ton.

On the Singapore Exchange, the September iron ore SZZFU3 index recorded a fall of 2.34% at $107.20 per metric ton, as of 0715 GMT.

Navigate Commodities' managing director, Atilla Widnell, stated, "In response to a combination of government-directed constraints and the forthcoming arrival of Typhoon Doksuri on China’s southern coast, Chinese blast furnaces have significantly reduced their capacity utilisation and operating rates."

According to a survey by consultancy Mysteel, the blast furnace capacity utilization rate amongst 247 Chinese steel mills fell for the third week in a row by an additional 1.33 percentage points week-on-week to 89.82% during the period of July 21-27. This reduction came as more steel producers nationwide reduced their output in response to requests from local authorities.

Earlier this week, some Chinese steel mills were instructed to limit this year's output to the same level as in 2022, as reported by Reuters on Tuesday.

Steel benchmarks on the Shanghai Futures Exchange showed a mixed trend. The most active rebar contract SRBcv1 dipped by 0.3% and stainless steel SHSScv1 saw a decrease of 1.1%. However, hot-rolled coil SHHCcv1 experienced a rise of 0.8%, and wire rod SWRcv1 saw an increase of 0.5%.

Other steelmaking inputs also showed a decline, with coking coal DJMcv1 and coke DCJcv1 on the Dalian exchange falling by 1.7% and 1.1% respectively.

Reflecting the lower steel demand, major iron ore miners reported a decrease in profits this week.

Vale SA VALE3.SA announced a year-on-year decline of 78.2% in its net profit for the second quarter on Thursday. Meanwhile, Rio Tinto RIO.L, RIO.AX cut its interim dividend on Wednesday, revealing its lowest first-half underlying earnings in three years.

National Australia Bank commented, "The recent increase in iron ore is appearing increasingly fragile as expectations dim for the kind of significant, infrastructure-heavy stimulus that China used to implement."

Source : Reuters (Reporting by Carman Chew; Additional reporting by Amy Lv and Beijing Newsroom; Editing by Christian Schmollinger)