DCE came under the RMB 600 a tonne level on Wednesday on bearish market sentiments, dropping to a 10-weeks low in the process.
The most-traded iron ore for January 2020 delivery contract dropped by 4.30% on-day to RMB 589.50 a tonne, depicting a straight downward dive since its opening at RMB 607 a tonne.
The rebar future did not fare better and dipped down by 1.07% on-day to RMB 3,686 a tonne after plunging to a day-low of RMB 3,633 a tonne before a slight rally at the afternoon session.
Not a typical buying season
Chinese end-users did not procure as they used to just before the Golden week holidays in China, which falls on the first week of October.
This ‘atypical’ trend could be attributed to high steel inventories kept by the mills at 12.87 million tonnes by the end of 16 Aug 2019, down 115,000 tonnes week-on-week but up 2.8 million tonnes as compared to the same period last year.
Due to this relative yearly surplus, the Chinese mills were in no hurry to replenish their inventories as we seen so commonly just ahead of China’s National Day holidays. However, there might be some last-minute purchases for steel mills toward the first week of October.
More headwinds ahead
Fundamentally, China-based steel mills are still hampered by bearish market outlook and low steel margins.
In its financial report, BHP warned the market participants of a volatile market ahead, given the escalating trade tension between the US and China as well as overall weak global economic performance.
Meanwhile, Chinese buying interests for iron ore had softened in anticipation of further output cuts issued by the Chinese authority over near term. In the meantime, the steel margins remained low and saw little improvement to attract end-users for more procurement of seaborne cargoes.