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PrintShanghai steel futures fell more than 1 percent on Monday in a broad-based decline across risky assets spurred by a weakening global economy, with the U.S. and Chinese economies slowing and the euro zone stuck in a debt crisis.
Steel's loss could mean curbed appetite for raw material iron ore, threatening last week's gains that pushed it back to two-week highs above $130 a tonne, as the weak consumption season in top market China starts this month.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange dropped to a session low of 4,020 yuan ($630) a tonne, its weakest since May 25, before closing down 1.5 percent at 4,033 yuan.
Rebar's drop was modest versus losses in other China-traded commodities, with rubber and cotton futures hitting their downside limit and copper sliding nearly 3 percent, as the outlook for the global economy continued to worsen.
Data on Friday showed job creation in the United States last month was less than half what analysts had expected, further blurring the outlook for the global economy with the Chinese manufacturing sector slowing and no end in sight to Europe's debt crisis.
Steel and iron ore prices rose for the first time in seven weeks last week as market players looked to more efforts, and possibly stimulus measures, by the Chinese government to buoy its economy.
But traders say the gains are likely to be short-lived.
"Steel consumption is still very slow and products are hardly moving in China. And we are going into the weak consumption season," said a Shanghai-based iron ore trader.
FRAGILE
Inventories of iron ore at Chinese mills are also not at critically low levels, standing at nearly 30 days over the past two weeks at 50 smaller Chinese steel mills, investment bank Macquarie said, suggesting there was no compelling reason for producers to buy.
"Last year, mills ran inventory down to 20 to 28 days before coming back to market. This makes the recent uptick in the iron ore price look fragile," Macquarie said in a note.
"As with steel, we think prices are rising on the expectations of better demand to come, rather than a real time change in the fundamentals and therefore prices are at risk of rolling over again in the near term."
Benchmark iron ore with 62 percent iron content IODBZ00-PLT was unchanged at $135.50 a tonne on Friday, based on Platts index. It gained more than 2 percent for the week.
But traders said Australian iron ore continued to fare better than other material, given its low content of impurities such as silica, making it more cost efficient for mills to buy.
"That's why Australian cargo continues to command a premium in the market. Other origins are taking a hit," said another trader in Shanghai.
Top miner Vale is selling two cargoes with a total volume of around 250,000 tonnes at a tender that will close later on Monday, traders said. (Source: Reuters)
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