SHANGHAI, Aug. 26 -- Steel prices on the Chinese domestic spot market fell back again this week after a brief revival, with demand uncertainties still weighing on the market.
Construction steel prices fell to 3,880 yuan ($570.7) per tonne in Shanghai on Thursday, down by 2 percent from last week, industry consultancy Mysteel said.
Analysts and traders said expectations of falling iron ore prices in the fourth quarter as well as an ongoing crackdown on the real estate sector were responsible for the weakness.
"Small steel mills have started to ramp up production, while market participants are expecting iron ore prices based on the index to fall for the fourth quarter, triggering the (steel) price fall," a Shanghai-based trader said.
China, the world's largest consumer of seaborne iron ore, was dealt a blow earlier this year when the top three miners abandoned an age-old annual benchmark system and adopted a quarterly pricing scheme to take advantage of soaring spot prices.
But BHP Billiton (BHP.AX: Quote)(BLT.L: Quote), one of the world's top three iron ore miners, warned on Wednesday of a looming slowdown in global raw materials markets due to a steel supply glut.
Benchmark January rebar futures, the most active contract by trading volume on the Shanghai Futures Exchange SRBF1, also fell this week, ending Thursday at 4,257 yuan per tonne, 2.5 percent down from last week.
A number of Chinese steel mills decided to raise their benchmark prices for September on the expectation that downstream demand would recover as construction activity resumes.
But analysts said this week's spot market declines signaled that the recent hikes were not based on any genuine upturn.
"I never believed the recent price hikes were demand-led rather than just a rebound after touching a low over a long period," Xu Xiangchun, a steel analyst with Mysteel said.
"However, steel prices may remain volatile in this second half, but they are unlikely to slump again due to still high iron ore production costs and demand from affordable housing construction," he added. ($1=6.799 Yuan)