Chinese steel futures prices slipped a little on Thursday as the momentum of the recent rally continued to fade. Prices will likely have to moderate eventually, and the trigger will either be weak demand or falling iron ore prices, but for now sentiment still supports steady prices, Kallanish notes.

The January rebar contract on the Shanghai Futures Exchange closed down CNY 29/tonne at CNY 2,567/t ($386/t), while the October contract for hot rolled coil closed down CNY 8/t at CNY 2,823/t.

Although the steam has run out of the current price rally and the outlook for later in the year is weak, inventories are still fairly low and any buying should support prices in the very near future.

Further out the only question is which price will fall first. Li Xinchuang, president of the China Metallurgical Planning and Research Institute (MPI) said recently that China’s steel production would fall sharply over the next three months. That will come as weak demand is unable to sustain high output. Will steel mills act first and trigger falling iron ore prices? Or will they be forced into action by falling steel prices? Either way, the market is likely to enter the last quarter at lower prices than currently.