DCE steadies on supply tightness

Chinese futures were relatively flat on Thursday and ended with slight gains after a choppy trading session. The most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for May 2020 delivery edged up slightly by 0.68% day-on-day to RMB 662 per tonne on Thursday. The steel rebar contract for May 2020 delivery on the Shanghai Futures Exchange also increased by 0.09% day-on-day to RMB 3,455 per tonne.   India’s JSW Steel and Tata to cuts output by 50%-70% India’s steel major, JSW Steel had shut down one blast furnace on Wednesday, and reduced production rates of other three furnaces to 50% on the same day. JSW Steel has a total of four blast furnaces with the capacities of 900,000 mt, 1.3 million mt, 2.7 million mt and 2.7 million mt a year and did not state which one being shut. Likewise, Tata Steel has cut its output by 70% due to the limited manpower amid the 21-days lockdown period on India. The steel major is slated to have a consolidated crude steel production capacity of 19.6 million mt per tonne and were forced to cut output due to reduced slat demand which were sold mainly to the Chinese market.   Supply tightness from countries’ coronavirus lockdown The recent high iron ore prices may have to do with market concern over potential supply tightness from various countries lockdown to curb the coronavirus pandemic. For instances, the lockdowns of India, South Africa and Canada were estimated to result a loss of 120 million mt per year. Indian fines were particularly popular among Chinese mills based in Hebei, Shanxi and Shandong due to its cost effectiveness. In filling the supply gap, Australian and Brazil miners stood to gain bigger market shares and commanded better prices for their iron products.   Special bonds to boost China’s infrastructure sector China’s infrastructure and steel sector are expected to receive a boost from the introduction of special bonds in 2020. As the China’s local government had issued a special bond worth RMB 1.023 trillion or $144.6 billion as of last week. Most of the funds will to be invested into infrastructure projects and could not to be invested into property project. As property sector is expected to decline due to drops in property sales from China’s slowing economy and the government’s determination not to use property as short term stimulus. Generally, China’s property sector accounts around 25% of China’s total steel consumption, while infrastructure accounts for about 20%.