Extreme weather in China may impact iron ore, steel demand

The ongoing heat wave in northern China and heavy rainfall in eastern and southern China have affected work at a number of construction sites, which might impact steel and iron ore demand in the short term, market sources said.

China's domestic ports have recently seen active restocking as most mills attempt to replenish stocks ahead of the China Dragon Boat Festival holidays over June 22-24.

High operating rates at most Chinese steel mills have also supported iron ore demand with medium-grade fines remaining the most cost-effective material.

However, work at construction sites has slowed down amid extreme weather in different parts of China, which would impact steel and iron ore demand in the near term, sources said.

Some market participants said they were concerned that low steel demand might additionally put pressure on steel production margins and impair steel mills' operating rates.

"I think it would further impact iron ore demand if steel demand continued to be lackluster," a China-based iron ore trader said.

"It is difficult to tell whether demand for iron ore purchased from the port side will be affected by the declining demand for rebar," an Eastern China steel mill source said. "If steel prices drop amid solid raw material prices, steel mills may cut production to lower iron ore demand due to shrinking production margins."

Also, heavy rain in East and South China has hit lump demand, which in turn supported fines demand, as high humidity in the stockyard impacted the efficiency of screening, market sources said.

Platts assessed 62% Fe IOPEX Yangtze River Ports China at Yuan 892/wmt FOT June 19, down Yuan 2/wmt from June 16, or at $116.64/dmt on an import-parity basis, S&P Global Commodity Insights data showed.

Platts assessed 62% Fe IOPEX North China at Yuan 894/wmt FOT, unchanged over the same period, or at $116.89/dmt on an import-parity basis, and 62% Fe IOPEX East China at Yuan 870/wmt FOT, down Yuan 4/wmt over the same period, or at $114.27/dmt on an import-parity basis, S&P Global data showed.