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PrintChina steel futures fell to more than four-month lows on Monday, pressured by slow demand in the world's biggest consumer which has curbed appetite for raw material iron ore and pulled down prices to levels last seen in February.
The weakness, mirrored in other risky assets from copper to oil, came despite China's weekend move to cut banks' reserves to lift lending and boost a slowing economy. Analysts say increasing market liquidity may not solve China's woes.
"It's not about liquidity, it's about real demand. So the liquidity improvement will not help because there's simply no demand out there," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.
Beijing's move, analysts say, confirm the weak outlook for the world's No. 2 economy, and along with a nagging euro zone crisis was enough to push funds to cut risk holdings.
The most active rebar contract for October delivery on the Shanghai Futures Exchange closed down 0.4 percent at 4,135 yuan ($660) a tonne, just off the session trough of 4,133 yuan, its lowest since Jan. 5.
Liu said rebar prices need to drop further, possibly below 4,000 yuan, to curb supply which grew at a record daily pace of around 2 million tonnes in the past two months, based on industry estimates.
China, which produces around half of the world's steel, has been driving global output, but overcapacity in China and elsewhere could limit price movements and producer margins.
"In our opinion, second quarter steel demand seems far from aggressive, and in most markets there seems to be ample steel availability at the present time," Macquarie Commodities Research said in a note.
"When coupled with the overcapacity that continues to plague the sector, the coming months and even years are set to see relatively tepid price action and thin steelmaker margins."
The weakness in the steel market continued to weigh on iron ore prices, with the benchmark 62-percent grade ore .IO62-CNI=SI falling more than 1 percent to $137.60 a tonne on Friday, the lowest since Feb. 22, based on data from Steel Index.
"We should see iron ore prices going lower further this week, especially if Vale continues to release cargo," a Singapore-based trader said.
Top miner VALE has been actively selling cargoes in the spot market in recent weeks, prices for which have mostly fallen in line with the overall market weakness. (Source: Reuters)
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