Iron Ore Retreats as Traders Stay Cautious on Demand Outlook

(Bloomberg) -- Iron ore extended its losing streak for a fourth day as traders remained cautious about demand and assessed moves to limit overcapacity in China’s steel sector.

The steel-making material dropped to a three-week low as industry players, gathered at the annual Singapore International Ferrous Week, weighed expectations for production cuts at Chinese mills. Meanwhile, daily ore flows from Brazil increased from the month before. 

China’s steel industry needs to control capacity expansion to solve the ongoing supply-demand mismatch, Tang Zujun, vice president of the China Iron and Steel Association, said at the Singapore event on Tuesday. Another focus is consolidation in the domestic industry, as it’s “relatively scattered” with about 40% of capacity concentrated in the top ten companies, he added.

The industry body said this month the government was “actively deploying and promoting” its crude steel production mandate. China’s steel market — the world’s largest — has been grappling with a massive glut and weak profitability at mills. 

The immediate outlook on China’s steel-consuming economy has “improved” thanks to a detente in the trade war between the US and China, according to Vivek Dhar, an analyst at Commonwealth Bank of Australia. “But it’s hard to see the property or infrastructure sectors recovering meaningfully without policy support” in the form of economic stimulus, which he said is likely to come in the second half of the year.

Iron ore futures in Singapore slipped 1.3% to $95.80 a ton as of 11:45 p.m. local time. Steel rebar contracts in Shanghai traded at the lowest since June 2017.

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