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China’s steelmakers are feeling the pinch as iron ore prices climb while domestic steel demand weakens. The usual seasonal boost from construction has failed to lift sentiment, leaving mills squeezed between high raw material costs and sluggish consumption.
The ratio of Shanghai steel rebar futures to Dalian iron ore contracts fell this week to its lowest since 2020, signaling narrowing mill margins, according to Bloomberg data. Analysts note that demand for finished steel remains weak, keeping prices subdued, while mills continue production with only modest profitability.
Foshan Financial Holdings Futures said in a note that iron ore prices are likely to outperform finished steel, highlighting the sector’s vulnerability to China’s struggling property market and slowing construction activity. Earlier this year, mills benefited from lower input costs, but with iron ore prices rising, profitability is expected to remain under pressure.
Han Jing, analyst at SDIC Futures, cautioned that mills have little leverage to push down raw material costs. If demand fails to recover, elevated production levels may decline, potentially weighing on iron ore prices later.
Meanwhile, Dalian iron ore futures climbed to their highest since July, driven by concerns over supply from Guinea’s Simandou mine and restocking demand in China. Singapore iron ore futures also reached multi-month highs before retreating 1.6% to $105.10 a ton. Rebar contracts in Shanghai, however, continued to slide, marking their fourth straight day of losses and heading toward the lowest levels since July.
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