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Iron ore slumps on uncertainty over China demand recovery

Aug 10 (Reuters) - Benchmark iron ore futures fell on Wednesday, with Dalian prices retreating from an eight-day peak, as uncertainty over demand prospects in top steel producer China kept traders cautious. The most-traded iron ore, for delivery in January next year, on China's Dalian Commodity Exchange DCIOcv1 dropped as much as 3.2% to hit 713.50 yuan ($105.59) a tonne. On the Singapore Exchange, iron ore's front-month September contract SZZFU2 was down 0.4% at $109.15 a tonne. Other steelmaking inputs also fell, with Dalian coking coal DJMcv1 down 3.7% and coke DCJcv1 shedding 3.1%. Iron ore had rebounded from seven-month lows seen in early July, as steel demand from China's construction industry picked up, lifting prices and margins and prompting mills to restart some of their idled blast furnaces. But analysts said higher costs of steelmaking inputs have cast doubts about the sustainability of margins improvement, and could eventually restrain mills from restarting other blast furnaces. Mandatory steel output cuts in China aimed at curbing emissions, along with a financial crisis engulfing Chinese property developers and COVID-19 lockdowns, are also clouding the outlook for demand for steelmaking ingredients. "We idealistically believe that Chinese steel mills will not be able to defy official ... mandates for long despite improved profitability," said Navigate Commodities Managing Director Atilla Widnell. "The more domestic steel mills increase production rates, the more likely they are to diminish and eat away recently improved margins," he said. Markets also weighed unverified reports that some blast furnaces with limited capacity in Hebei, China's top steel-producing province, will be shut down by end-2022. Adding to the gloomy mood, China's inflation hit a two-year high in July, while tensions over the Taiwan Strait continued between Chinese and Taiwan navy ships. Rebar SRBcv1 and hot-rolled coil SHHCcv1 on the Shanghai Futures Exchange SRBcv1 fell 1.5% each, while stainless steel SHSScv1 dipped 1.2%. (Reporting by Enrico Dela Cruz in Manila; Editing by Sherry Jacob-Phillips) ((enrico.delacruz@thomsonsonreuters.com)) The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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