Shanghai rebar steel futures fell to their lowest level on record on Monday as prolonged weakness in China’s property sector darkened the outlook for demand, with Dalian iron ore prices retreating to a two-month trough.
Prices of new homes in China dropped in July from June, the third straight monthly decline, and the softness spread to more cities, despite efforts by many local governments to shore up the sector.
China’s once-hot housing market has slowed this year as both sales and prices turned south in the biggest pull-back in two years, driven in part by the cooling economy and by a national government campaign to keep price rises in check.
“Demand for construction steel products hasn’t really picked up despite efforts by local governments to ease restrictions on property purchases,” said a trader in Shanghai. “We can see less new projects, which will be negative for steel demand.”
The most traded rebar for delivery in January on the Shanghai Futures Exchange dropped to 3,006 yuan ($489) a tonne, the lowest for a most active contract since the bourse launched rebar futures in March 2009.
The price of rebar has fallen nearly 19 percent this year, on track for a fifth consecutive year of decline.
High supply of steel in China, the world’s largest consumer and producer, is also weighing on prices.
China’s large steel mills produced 1.812 million tonnes of crude steel a day on average in the first 10 days of August, up 3.6 percent from the last 11 days of July, data from the China Iron and Steel Association showed.
Iron ore futures in China also pulled back. Iron ore for January delivery on the Dalian Commodity Exchange fell 1.4 percent to end at the session’s low of 650 yuan a tonne, its weakest intraday level since June 20.
A sustained drop in China’s iron ore port stocks helped cap the losses in Dalian futures.
Stockpiles of imported iron ore at China’s ports fell for the fourth straight week to 109.4 million tonnes as of Aug. 15, according to data tracked by industry consultancy SteelHome.
“From what we see on the ground, demand still looks quite good and mills continue to buy material, given that their production rate is still high,” said another Shanghai-based trader.
“But I don’t think we will see much impact on the price if the level remains above 100 million tonnes,” he said.
In the year to date, the port stocks are still up more than 26 percent.
Iron ore for immediate delivery to China gained 0.2 percent to $93.40 a tonne on Friday, but ended the week down by 2.6 percent, its biggest loss since mid-June.
Diversified miner BHP Billiton, which is relying on iron ore for the lion’s share of fiscal 2014 earnings, has declared its preference for a demerger of its aluminium, manganese and nickel assets, setting the stage for the formation of a separate business that could be worth at least $12 billion.