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Steel Rallies, Iron Ore Defies Analysts’ Expectations

August 18, 2016 at 20:43 by Brent Lantzy

Chinese steel futures rallied earlier this week on supply concerns with the October SHFE contract touching 2,687 yuan per ton on Tuesday, and the heavily traded January contract reaching 2,601 on Wednesday, the highest levels for both contracts since April.

Officials in the major steel producing city of Tangshan announced that they would cut steel capacity by 40 million tons by the end of next year. Authorities have also ordered short term production cuts of 30–50% through the rest of August for many steel mills in the Yangtze River region in an effort to curb pollution ahead of the September 4–5 G20 summit in Hangzhou.

The October rebar contract Huge Bounce House settled down 49 yuan (-1.9%) at 2,580 yuan per ton on Thursday, while the most heavily traded January contract settled down 29 yuan (-1.1%) at 2,542 yuan per ton.

January iron ore on the DCE closed down 4.5 yuan (-1%) to 432 yuan per ton ($65.20) on Thursday, not far removed from the 466 yuan high posted on April 25.

The Steel Index reports a $0.70 (-1.1%) decrease to $61.10 per ton in the spot price of iron ore deliverable to the Tianjin port on Thursday. 62% fines delivered to the Qingdao port came in at $60.71 per ton, according to Metal Bulletin.

Many traders are expecting dampened demand over the next few months as China enters the traditionally slow winter season. Analysts at Morgan Stanley, an investment bank, are predicting a plunge in iron ore prices to around $40 during the second half of 2016.

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