Steel sags on profit taking; raw materials extend losses

Shanghai rebar steel futures retreated on Tuesday as investors locked in gains after prices rallied in the previous session, while steelmaking raw materials extended losses on worries over ample supply.

Shanghai rebar futures climbed as much as 5.3 percent on Monday, when Chinese markets reopened after a weeklong holiday, on expectations of tighter supply during winter as local governments implement China’s orders to curb production by as much as 50 percent to limit smog.

The most-active rebar on the Shanghai Futures Exchange was down 4.1 percent at 3,579 yuan ($542) a ton during afternoon trading on Tuesday.

The outlook for steel prices remains relatively firm “given the winter production cuts plus overall reasonable demand levels,” said Ric Spooner, chief market analyst at CMC Markets.

“But I would not be surprised to see prices dip below the lows that we have seen in late September, and that just reflects the size of the rally that we’ve seen in rebar.”

Rebar futures have risen 41 percent this year, largely driven by China’s efforts to curb oversupply.

Chinese authorities have ordered heavily air-polluting industries, including steel, to reduce output and cut emissions during the four-month winter heating period.

The steel production cuts are expected to curb demand for raw materials – iron ore and coking coal.

The most-traded iron ore on the Dalian Commodity Exchange slipped 2.5 percent to 438 yuan per ton Tuesday, adding to Monday’s 2.1 percent decline.