Shanghai rebar steel futures dropped for a seventh straight day on Thursday and marked their steepest daily fall since March as investors continued to lock in gains following a rally that pushed prices to a seven-year peak.
Coke prices sank more than 5 percent, also after a recent rally to a record high.
Analysts, however, say ongoing production curbs in China as part of its anti-pollution campaign and the winter restrictions ahead should support steel prices at least over the next six months.
The most actively traded January rebar on the Shanghai Futures Exchange closed down 2.5 percent at 4,118 yuan ($603) a tonne, its biggest single-day drop since late March.
The construction steel product fell nearly 7 percent since hitting a seven-year high of 4,418 yuan on Aug. 22.
“Our view is that at least while these cuts are coming and that’s all in northern China from now till end of March, generally what we’ll see is probably a price uptrend,” said Vivek Dhar, analyst at Commonwealth Bank of Australia.
“But you’re just going to get down days and that’s what we’ve seen consecutively since last week.”
Apart from ongoing production restrictions in cities such as top-producing Tangshan, northern Chinese mills will be required to cut capacity by 30 percent-50 percent over winter, the second straight year such measures will be enforced, according to a draft plan released earlier this month.
Dhar said while worries the escalating U.S.-China trade war could eventually impact on steel demand, the supply limits will remain the key influence for the market.
“I think the supply cuts story is the dominant story for steel, iron ore and coking coal for the next six months at least,” he said.
China’s anti-smog policy has boosted use of higher grade iron ore and other raw materials among steel mills, lifting their premiums over lower grade material.
Iron ore on the Dalian Commodity Exchange gained 0.2 percent to 484.50 yuan a tonne, after earlier hitting a nearly six-week low of 476 yuan. Coking coal fell 0.7 percent to 1,253.50 yuan a tonne
Coke, the processed form of coking coal, slid 5.3 percent to 2,448 yuan, after a rally earlier this month to a record 2,720.50 yuan.
Spot iron ore for delivery to China’s Qingdao port rose 2.3 percent to $67.37 a tonne on Wednesday, according to Metal Bulletin.