Chinese steel futures prices nosedived on Monday as China’s stock market sent shockwaves through the market. Although the impact of the stock market may be short term, a sharp dive in iron ore prices could keep costs and prices down, Kallanish notes.

The January 2016 rebar contract on the Shanghai Futures Exchange closed down CNY 98/tonne at CNY 1,934/t ($303/t), while the same contract for hot rolled coil closed down CNY 97/t at CNY 1,941/t.

Chinese and global economic sentiment was the key short term driver. Amid a global sell-off in stocks, the Shanghai Composite Index slumped 8.49% to 3,209.91, below the level at the start of the year. China’s economy is struggling to maintain growth and the weak manufacturing PMI released Friday did little to calm jittery investors. New figures also show China saw record capital outflows in July of nearly CNY 570 billion as doubt mount over the wider economy.

China’s steel market fundamentals are bottoming out however and sustained weakness in prices is more to do with iron ore prices, which also plummeted on Monday (see separate article). Steel market inventories have continued to fall and were down 8.3% from the end of July and almost 15% year-on-year to 9.87m t on 21 August.