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PrintShanghai steel rebar futures eased on Wednesday, after a two-day gain that pushed prices to their highest in 11 weeks, weighed by worries over tepid demand as dropping temperature in top consumer China curbs construction activity.
Slower demand cut China's daily average crude steel output by 3.3 percent from October to 2.029 million tonnes last month, government statistics showed on Tuesday.
The most-traded rebar for May delivery on the Shanghai Futures Exchange was down 0.1 percent at 3,714 yuan ($612) a tonne, having fallen to a session low of 3,691 yuan.
The price of the construction steel product reached 3,737 yuan on Tuesday, its highest since Sept. 24.
Prices of both rebar and steel billet, another steel product, are down about 200 yuan per tonne compared to this time last year, traders said, while the price of raw material iron ore is up by around $15 a tonne.
"That means for mills who only produce rebar and billet they're actually not making money as they did last year," said an iron ore trader in Shanghai. "At the moment, demand for rebar should shrink as the temperature drops."
Baoshan Iron and Steel, China's biggest listed steelmaker, has a more optimistic outlook for demand next month. It will raise prices for its hot-rolled coil and cold-rolled coil products by a modest 50 yuan per tonne from January, after leaving them unchanged in November and December.
Baosteel mainly produces flat products used in manufacturing and its outlook follows recent data showing the country's factory activity remains brisk.
"The oversupply in China is not going to help the pricing side. We expect a slight upturn in prices in the second quarter (2014), but it's not likely to be a great one," said Peter Fish, managing director at UK steel consultancy MEPS.
Excess steel capacity in China, which some analysts and industry groups estimate at between 200-300 million tonnes, has squeezed profit margins of its legions of steelmakers, limiting any price upside from a pickup in demand.
Rising raw material cost is also hurting margins, with spot iron ore prices holding near 3-1/2-month highs close to $140 a tonne.
Iron ore for immediate delivery to China .IO62-CNI=SI was steady at $139.40 a tonne on Tuesday, according to data compiler Steel Index. It reached $139.70 on Dec. 4, the highest since
mid-August.
"I think once we reach above $140, it will go down very quickly because there's a lot of available supply around," the Shanghai trader said.
Iron ore for May delivery, the most-traded contract, on the Dalian Commodity Exchange dropped 0.6 percent to 937yuan a tonne, with nearly 14,000 lots traded so far.
On Tuesday, volume for the May contract was 8,450 lots, the lowest since its Oct. 18 launch.
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