China’s Steel Futures Suffer Biggest Weekly Retreat on Record

Updated on
  • Steel flips from bull market to bear in about three weeks
  • Prices drop as production rises, speculative frenzy fades

China’s steel futures suffered the biggest weekly slump on record as mills increased output and regulators reined in speculative trading.

Steel reinforcement-bar for October delivery dropped as much as 3.6 percent to 2,000 yuan ($307) a metric ton on the Shanghai Futures Exchange before closing at 2,030 yuan. Futures tumbled 13 percent this week and dropped to the lowest intraday level since March 16. Prices have descended into a bear market after peaking on April 21.

“The steel market took a hit as blast furnace operation rates, inventories, have all been climbing, so the previous concerns over a shortage have abated,” Xu Tao, Wang Nan and Li Xiaodong, analysts at Zheshang Futures Co., said in a report Friday. Rebar inventories climbed 1.1 percent last week, advancing for the first time in 9 weeks.

Data on Saturday is forecast to show that China’s crude-steel production jumped to a record in April as mills ramped up production to take advantage of the rally and the best profits since the financial crisis in 2009. Prices have taken less than three weeks to flip from a bull into a bear market, with benchmark prices slumping about a quarter since April 21.

Prices fell after exchanges increased margin requirements and transaction fees in the past month to cool speculation, the Zheshang analysts said. Top policy makers have signaled a shift away from further stimulus as the People’s Daily this week published comments from unnamed leaders to repudiate credit-fueled growth and re-emphasize structural reforms.

“Steel futures may have some short-term support” because the inventory levels are still lower than the 6.4 million tons at the same time a year ago, according to the analysts.

Hot-rolled coil futures for October delivery tumbled by 12 percent this week in Shanghai while iron ore for September delivery lost 13 percent in Dalian.

— With assistance by Feiwen Rong

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