Chinese steel futures dropped more than 3% on December 6 after recent sharp gains that lifted prices to their strongest level in three months, although firm demand and tight supply kept investor sentiment upbeat, Reuters reported.
The pullback in steel prices also dragged down raw materials iron ore and coking coal, which similarly climbed to three-month peaks earlier this week, and followed a selloff in China-traded base metals led by copper SCFcv1 as investors cut their exposure to risky assets.
The most actively traded rebar for May delivery on the Shanghai Futures Exchange SRBcv1 closed down 3.3% at 3,916 yuan/t on December 6.
"Most people are still unsure as to what exactly happened or changed but as far as I can tell the market got caught long and wrong and very much the wrong side of a dominant Chinese speculative flow," Matt France, head of institutional sales for metals in Asia at Marex Spectron, said in a note.
The construction steel product touched 4,104 yuan/t on December 4, the highest since September 6, and some analysts say the strength could last.
Steel demand in China has been stronger than expected despite the seasonal slowdown during winter, with construction activity in eastern and southern parts of the country "quite robust", said Richard Lu, analyst at CRU in Beijing.
This combined with tighter supply as 28 mills in northern Chinese cities curb production in line with Beijing's campaign to fight smog over winter, he said.
"There are also proactive closures in cities outside the 28 required, so perhaps in December we may see even less steel production," said Lu. "Inventories are coming down and market is quite tight."
Chinese traders' stocks of rebar stood at 3.03 million tonnes as of December 1, the lowest since at least 2011.
(Writing by Jessie Jia Editing by Harry Huo)
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