During the trading session earlier, iron prices nudged down mid the speculated fear that commodities are set to slump as the Chinese economy struggle to find recovery. Market experts also warned the market regarding the possible effects of the G20 summit on the majority of the commodities and slower demand for steel.
Local Demand For Steel Declines
Iron ore has been one of the best performers among the commodities in the first half of the year. The metal surged almost 40 percent, however, the demand for steel is feared to decline in the next few months, which could be a negative sign for the trend of the price.
Vice chairman at the China Iron & Steel Association Li Xinchuang revealed that steel production in China is expected to wane these months until next year. “There will be significant declines in the next three months. If steel consumption and production are set to decline, then there’ll definitely be less demand for iron ore.”
Mr. Li also added that the original estimate was for a 3 percent decline this year and steel output increase was very unlikely given that steel demand contracted followed by a narrow growth of exports. “Based on how things have played out this year, I think the decline in output might be less than anticipated but the downtrend remains unchanged.”
Adding to this negative sentiment on steel was the projected tight production of automobiles and airplanes. The emerging economies were highly affected by post-Brexit and the indecision of the Federal Reserve regarding the Fed rate hike. For instance, the companies in Japan have been complaining in the appreciation of the yen. In line with this, the majority of the auto companies adjusted their forecasted production for the current and upcoming quarters.
G20 Summit
Meanwhile, the upcoming G20 summit to be held in Hangzhou this September was closely watched by the market participants. During the event, the current concerns with the commodities are expected to be addressed. China remains to be the world’s largest supplier of steel which is produced from iron ore.
As reported, the Chinese government ordered some of the polluting steel factories to be closed in preparation for the big event. A prominent multinational financial services corporation noted that “Common practice ahead of international events, China’s local governments will impose a number of restrictions on several industries to help improve air quality in the region — including the suspension of most construction activities; restrictions on ore sintering, cement, petrochemical and coke production.”
Conclusion
Since the Chinese is heavily traded, a temporary cut of output could be a breather for the steel futures. Just like any commodities, over supply drags the price lower as the market becomes flooded., future traders become vigilant on the next action of the major producers as the common notion that commodity prices will likely trade at the red line. In light of the current economic situation of China and the sustainability concerns relative to the iron ore, the metal might remain in a tight range and the steel demand could drop further.