Iron ore futures dipped on Tuesday, as shrinking margins among steelmakers in top consumer China, squeezed by persistently high prices, dampened buying appetite and triggered risk-off sentiment.

The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) ended daytime trade 0.24% lower at 819.5 yuan ($117.47) a metric ton.

The benchmark February iron ore (SZZFG6) on the Singapore Exchange fell 0.81% to $108.3 a ton as of 0717 GMT. The benchmark has stayed above a key psychological level of $100 for more than five months.

Liquidity in the spot market thinned as some steelmakers held back from procuring cargos with prices holding high.

The total transaction volume of sea-borne iron ore tumbled 52% on Monday from the previous trading session, data from Mysteel showed.

Meanwhile, swelling portside inventory pressured the price of the key steelmaking ingredient.

Steel margins shrank and the current iron ore price was higher than a reasonable valuation fuelled by fundamentals, both posing downside risks, analysts at broker Nanhua Futures said in a note.

While several mills might slow down restocking ahead of the Lunar New Year holiday in February, there was expectation that the buying spree will likely resume after a downward correction in prices, said analysts.

Other steelmaking ingredients on the DCE languished, with coking coal NYMEX:ACT1! and coke (DCJcv1) down 2.5% and 1.08%, respectively.

Steel benchmarks on the Shanghai Futures Exchange were mostly weaker. Hot-rolled coil EHR1! eased 0.09%, stainless steel HRC1! lost 0.54% and wire rod (SWRcv1) shed 0.4%. Rebar RBF1! was flat.
Source: Reuters