Economic indicators suggest that government stimulus is boosting the ailing construction industry, which should flow through to stronger consumption for the steel-making material. Set against that, a snap lockdown in the steel hub of Tangshan is a reminder that China’s Covid Zero policies could suppress output and sap demand.
Iron ore in Singapore fell 0.7% to $96.40 a ton as of 3:52 p.m, having climbed as much as 2.1% earlier. Futures in Dalian closed 1.4% lower, while steel rebar and hot-rolled coil contracts retreated in Shanghai.
Higher steel output and falling rebar inventories are signaling that Beijing’s bid to stimulate construction after an almost yearlong property rout are having a positive impact. Daily steel output edged up 3.3% in the first 10 days of September compared with the end of August, while new investments are fueling building activity.
Despite the news from Tangshan, the market remains broadly optimistic that disruptions due to strict Covid-19 restrictions will be modest during the autumn’s peak construction season. With China’s economic recovery the main focus for authorities, the economic impact of lockdowns may be lessening, said Chen Wenguang, a research director at Lange Steel Information Research Center.
As blast furnaces continue to ramp up production, mills will move to restock iron ore inventories ahead of the week-long National Day holidays early next month, providing near-term support for prices, Haitong Futures said in a note.
Operating rates at blast furnaces have trekked higher and are close to their peak for the year. Investor focus is now turning to the National Party Congress that starts Oct. 16, where new infrastructure funding or housing-loan policies may be announced, which could further aid sentiment for steel.