By Emily Ou Yong
Iron ore futures recovered on Monday as a drawdown in Chinese port stockpiles and a fresh liquidity injection from the central bank lifted sentiment, even as a sharp deterioration in steel mill profitability capped gains.
The most-traded September iron ore contract on China's Dalian Commodity Exchange (DCE) COMEX:TIO1! traded 0.14% higher at 738 yuan ($108.67) per metric ton.
The benchmark August iron ore (SZZFQ6) on the Singapore Exchange was 0.55% higher at $98.35 a ton as of 0717 GMT.
Portside iron ore inventories at major Chinese ports fell 0.47% week-on-week last Friday, data from consultancy Mysteel showed.
The People's Bank of China is scheduled to conduct a 1 trillion yuan reverse repurchase operation on the day, according to a Chinese state report. This kind of operation supports economic activity by keeping credit flowing through short-term loans to commercial banks.
Gains were however capped by a sharp deterioration in steel mill margins. Profitability among tracked mills fell to 42.86%, a decline of 8.22 percentage points week-on-week, according to data from Mysteel.
The blast furnace operating rate edged down 0.42 percentage points week-on-week to 83.99%.
Some traders expect steel mills to trim output in response to thinning margins, which could weigh on iron ore demand in the near term.
Other steelmaking ingredients on the DCE rose, with coking coal NYMEX:ACT1! and coke (DCJcv1) up 0.23% and 0.93%, respectively.
Steel benchmarks on the Shanghai Futures Exchange were mixed. Rebar SGX:RBF1! rose 0.23%, hot-rolled coil COMEX:EHR1! gained 0.34%, and stainless steel COMEX:HRC1! strengthened 0.92%. Wire rod (Rcv1) fell 0.51%.
($1 = 6.7914 Chinese yuan)