08-12-2016

China steel rallies with raw materials on reform drive, demand view

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Chinese rebar steel futures surged nearly 7 percent on Wednesday to their highest since April 2014, spurring a rally in raw materials iron ore and coking coal, amid signs of a strengthening economy and worries over tighter supply.

Iron ore jumped more than 7 percent to its strongest in nearly three years, while coking coal and coke also rose sharply. The advance marked the fifth consecutive day of gains for both steel and iron ore.

Traders are replenishing steel inventories on hopes firm demand will be sustained next year as China’s manufacturing sector recovers and Beijing spends more on infrastructure projects.

At the same time, ongoing Chinese environmental inspections in Beijing’s efforts to tackle pollution have restricted output at steel mills, tightening the market.

“The reason why the steel market remains strong even though seasonally it’s a weak period is mainly due to supply-side tightness,” said Helen Lau, analyst at Argonaut Securities. “Also the macroeconomic momentum is different from the same period last year.”

The most-traded rebar on the Shanghai Futures Exchange rose as far as 3,428 yuan ($498) a tonne before trimming gains to close at 3,382 yuan, up 5.1 percent.

Construction activity typically slows in China during winter, but analyst Lau said mills continue to lift steel output hoping prices will remain high as the economy mends.

Activity in China’s manufacturing sector expanded at the quickest pace in more than two years in November and growth in its services sector accelerated to a 16-month high.

Tracking stronger steel prices, iron ore on the Dalian Commodity Exchange rallied as much as 7.2 percent to 648.50 yuan per tonne, the highest since January 2014. It closed up 6.5 percent at 644.50 yuan.

Coking coal rose 5.2 percent and coke jumped 6.7 percent.

“Iron ore is just a steel play. If the steel price is good that will support the iron ore price,” said Lau.

Soaring futures have lifted bids for physical iron ore cargoes, with the spot benchmark likely to cross $80 a tonne again.

Iron ore for delivery to China’s Qingdao port rose 1.4 percent to $79.73 a tonne on Tuesday, according to Metal Bulletin. It touched a two-year high of $80.83 on Nov. 28.

Source: Reuters 

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