Risk Off Move Weighs On The Market

Turning to bulks, the most-active SGX iron ore futures extended declines yesterday, with China announcing it would reduce its steel output, along with the expectation for lower steel demand growth this year. Also, sentiment around steel demand has been susceptible to shifts in policy. China has just started to tighten liquidity, with its overnight repo rate hitting the highest level in five-years.

The latest update from China’s Ministry of Industry and Information Technology called for a speeding up in the reduction of the country’s steel output, which includes banning illegal new capacity additions and firming up its guidance on capacity swaps. Crude steel output topped 1 billion tonnes for the first time last year supported by massive infrastructure spending by the government to revive the depressed economy due to the pandemic. The steel sector roughly accounts for 15% of carbon emissions and linking output to emissions highlights the nation’s focus to deliver on its promise of a carbon-neutral economy by 2060.

Meanwhile, the China Iron & Steel Association (CISA) expects Chinese steel-product demand to grow by a small margin this year due to the nation’s continued struggle with Covid-19. The group said that China’s apparent demand for crude steel rose 9% YoY in 2020, while steel-product demand rose 7% YoY last year. The group also believes that steel-product exports will continue to decline this year, while imports will keep rising as the recovery in international demand faces challenges.


CBOT corn recovered the losses made over the last week and made a fresh 5-yr intraday high of US$5.44/bu yesterday with China’s demand for  US corn remaining very strong. The USDA reported sales of 0.7mt of corn to China yesterday. This follows sales of 1.36mt of corn on Tuesday. China’s corn price continues to trade at a wide premium to CBOT corn, averaging US$228/t so far this year compared to an average of around US$175/t in 2020.

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