Shanghai steel futures fell more than 2 percent to a record low on Friday and were headed for their sixth straight weekly fall amid sluggish demand in top consumer China, putting more pressure on prices of raw material iron ore.
Spot iron ore has dropped further this week after Monday’s spike, putting prices back near their lowest in five years amid a supply glut. Iron ore futures in China dropped nearly 3 percent on Friday and those in Singapore also edged lower.
The most-traded rebar contract for delivery in January on the Shanghai Futures Exchange was down 2.2 percent at 2,716 yuan ($443) a tonne by midday, after hitting a record low of 2,714 yuan.
Rebar, or reinforcing bar, a steel product used for construction, has lost 2 percent for the week so far.
“There is no sign that demand for steel can improve in the short term,” said Cao Bo, analyst at Jinrui Futures in Shenzhen, citing the prolonged weakness in China’s housing sector.
China’s home prices fell for a fourth straight month in August, data showed on Thursday, pointing to a deepening downtrend in the country’s property market that is weighing on the broader economy.
Real estate, along with infrastructure, account for about half of China’s steel consumption.
“I don’t think we’ve seen the worst for the iron ore and steel markets,” said Cao.
Iron ore for January delivery on the Dalian Commodity Exchange was down 2.9 percent at 576 yuan a tonne, just off the session low of 575 yuan.
The contract fell to 570 yuan last week, its weakest since the bourse launched the contract in October last year. In Singapore, the October contract on the Singapore Exchange fell 1.6 percent to $81.50 per tonne.
Losses in futures and lack of buying interest for immediate cargoes in China may weigh further on spot iron ore prices, traders said.
Iron ore for immediate delivery to China .IO62-CNI=SI declined 1.4 percent to $83 a tonne on Thursday, according to data compiled by Steel Index. The price fell to $81.90 last week, its lowest since September 2009.
The benchmark index price has fallen in the past three days after soaring nearly 4 percent on Monday. The surge was fuelled by weekend gains in China’s spot steel prices which have since retreated.
“Chinese steel mill restocking has been confined to small parcels this week and recent stimulus measures haven’t yet markedly improved sentiment,” Australia and New Zealand Banking Group analysts said in a note.
China’s central bank this week offered to lend 500 billion yuan ($81.5 billion) to big banks in a bid to prop up a slowing economy.