Industrial commodities drop on oversupply, demand concerns

Asian industrial commodities, including steel, iron ore and rubber, slumped on Monday as concerns about the economic health of the region's two biggest export economies, China and Japan, raised questions about their demand for raw materials.

Chinese steel and iron ore futures sank to their lowest since March, each tumbling 6 per cent at one stage, as faltering domestic demand puts renewed pressure on the oversupplied global steel market.

Steelmaking raw materials coking coal and coke slid by as much as 7 per cent and other China-traded commodities also declined amid growing doubts on whether the world's second-largest economy is stabilising. Chinese exports for April slumped a more-than-expected 1.8 per cent from a year ago, the government said on May 8.

Chinese and Japanese rubber futures dropped 5.3 per cent and 4.5 per cent, respectively, following reports on Monday that Japan's exports in April fell 10 per cent from a year ago and new manufacturing orders plunged to the lowest in 41 months. Seasonal demand for steel in China has passed and the current hot weather has slowed construction activity, said Kevin Bai, analyst at CRU consultancy in Beijing.

“Along with the increased steel production that we saw in response to the price increase this year, prices will be under pressure,” said Bai. Rebar, or reinforcing bar used in construction, fell by the 6 per cent maximum allowed by the Shanghai Futures Exchange (ShFE) to a session low of 1,930 yuan ($295), its weakest since March 7.

It closed down 5.2 per cent at 1,947 yuan.

On the Dalian Commodity Exchange, iron ore also dropped by its 6 per cent downside limit to 350 yuan a tonne, its lowest since March 4. It closed down 5 per cent at 353.50 yuan.

CHINA STEEL STOCKS RISE

Chinese steel and iron ore futures have fallen 30 per cent from their April peaks. The price surge was fuelled by bets that the economy would improve, leading to bloated prices and volumes on domestic commodity exchanges and prompting regulators to impose curbs to restore order.

Steel and rebar prices appeared to stabilise last week, rising for the week after three straight weeks of declines, but today's drop indicates that more froth may be worked from the market.

China's equity benchmarks ended the day higher but the Shanghai Composite Index has dropped for five weeks in a row, underscoring concerns about the economy.

Stocks of steel products, including rebar, held by Chinese traders rose for a third week to 9.55 million tonnes in the week to May 20, said Bai.

Imported iron ore stocks at China's major ports rose 1.6 per cent from the previous week to 100.45 million tonnes on May 20, according to data tracked by industry consultancy SteelHome, the highest since March 2015. Dalian coking coal and coke each slid by their 7 per cent exchange-set limit, before closing down 4.2 per cent and 5.4 per cent, respectively. Shanghai hot-rolled coil dropped 5.3 per cent.

Shanghai rubber fell 5.3 per cent, Zhengzhou cotton slipped 3 per cent, Dalian egg dropped 1.2 per cent and Dalian soyoil lost 2.4 per cent.

Rubber on the Tokyo Commodity Exchange (TOCOM) plunged more than 5 per cent to 154.30 yen ($1.41), the weakest since Feb. 29, before closing 4.5 per cent lower at 155.80 yen.

TOCOM futures, which set the tone for tyre-grade rubber prices in Southeast Asia, have lost more than 20 per cent since April on oversupply fears and weak demand in top buyer China.