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Iron ore retreats on China steel output curbs, demand pessimism

Iron ore retreats on China steel output curbs, demand pessimism

FILE PHOTO: Workers are seen on the top of an iron ore pile as a machine works on blending the iron ore, at Dalian Port, Liaoning province, China September 21, 2018. REUTERS/Muyu Xu

Iron ore futures fell on Tuesday, with the Singapore benchmark retreating more than 7per cent after a four-day rally and Dalian contracts erasing early gains, as investor focus shifted back to steel production controls in China.

The steelmaking raw material's most-active November contract on the Singapore Exchange plunged as much as 7.4per cent to US$125.40 a tonne.

On China's Dalian Commodity Exchange, the most-traded January contract ended daytime trading 0.2per cent lower at 769.50 yuan (US$119.26) a tonne. It rose as much as 4.3per cent earlier in the session.

"China's plans to have a flat steel production growth this year look possible, as output curbs have been accelerated by power shortfalls," said ANZ senior commodity strategist Daniel Hynes.

Steel output in China, the world's biggest producer of the construction and manufacturing material, will have to contract 10per cent in annual terms between September and December, to stay in line with its decarbonisation goals, Hynes said.

China's crude steel output in January-August grew 5.3per cent from a year earlier, despite production controls intensifying beginning July.

For a graphic on China monthly crude steel output:

https://fingfx.thomsonreuters.com/gfx/mkt/klvykzgdqvg/Pastedper cent20imageper cent201634017879486.png

Tighter steel output curbs could be expected in early 2022, with China likely to keep air quality as clean as possible for the Winter Olympics in February, analysts said.

But while iron ore prices have drastically fallen from record peaks in May, the surge in costs of two other steelmaking inputs - coking coal and coke - continued.

Dalian coking coal jumped 7.1per cent to a fresh contract high, while coke advanced 5.8per cent to its strongest level since Sept. 10, as supply concerns were exacerbated by recent flooding in Shanxi province that has led to mine closures.

With the global energy crunch and signs of trouble in China's property markets weighing heavily on sentiment, construction steel rebar on the Shanghai Futures Exchange shed 4.2per cent, while hot-rolled coil slumped 3.6per cent.

Stainless steel lost 1.9per cent.

(Reporting by Enrico Dela Cruz in Manila; Editing by Amy Caren Daniel and Subhranshu Sahu)

Source: Reuters

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