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Chinese steel prices extend losses on winter demand concerns

Chinese steel futures on Thursday extended losses on concerns that demand in the world’s top producer will decline as winter kicks in, driving down prices for raw materials including iron ore and coke.

The most active rebar on the Shanghai Futures Exchange had dropped 1.6 percent to 3,894 yuan ($588.47) a tonne by the midday break.

“Spot steel prices hit a multi-year high (on Tuesday), and traders are clearing their stocks to lock-in profit amid worries that the turning point may come soon as demand will drop off seasonally,” said an analyst with a trading firm in Shanghai.

“The physical market starts weakening today.”

Stronger-than-expected demand from the construction sector due to a warm start to the winter has boosted spot steel prices and margins for Chinese steel mills since November, further tightening supplies as mills slashed output.

Chinese steelmakers in 28 cities have been ordered to cut production between mid-November and mid-March amid a green push by the government, a move that expected to extend supply shortages for some steel products.

“Steel prices though should continue to remain well supported on shortage concerns, helping drive steel margins higher,” Vivek Dhar, an analyst with Commonwealth Bank of Australia, said in a note.

The continued steel production cutbacks are expected to hurt demand for key steelmaking raw materials including iron ore and coke, pushing down prices by a larger extent.

Dhar expected iron ore demand in northern China to weaken with the cuts to steel output and other industrial activity to last until mid-March.

Iron ore on the Dalian Commodity Exchange fell 3.4 percent to 516.5 yuan.

Dalian coke had slumped 4.8 percent to 2,077.5 yuan a tonne by the midday break. Coal fell 3.4 percent to 1,312 yuan a tonne.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB dropped 3.3 percent to $69.7 a tonne on Wednesday, according to Metal Bulletin.
Source: Reuters (Reporting by Ruby Lian and Josephine Mason; Editing by Joseph Radford)

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