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China steel futures at SHFE at one week highs on recovery bets

Reuters reported that Chinese steel and iron ore futures rose to their highest in more than a week on hopes that a brightening economic outlook would spur demand for the two commodities, although property sector risks kept advances in check.

Rebar for January 2015 rose 0.7% to CNY 3,085 per tonne on the Shanghai Futures Exchange, after peaking at CNY 3,089 also its highest since July 18.

Ms Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong said that “The sentiment towards the second half for China has really improved but we still believe that the stimulus we have seen is minuscule and the property market remains tough.”

Ms Lau said that “It is the lowest stockpiles of steel held by traders since the last week of 2012, when they stood at 11.88 million tonnes. Inventories could fall further in the second half of 2014, as stockpiles did in 2012. If supported by strong end user demand, that could sustain a rally in steel prices through early next year as it did in 2012 through early 2013.”

She said that another scenario would be that Chinese steel traders would restock from August but then the price gains would be milder as it would not be backed by end user demand, which is what happened in 2011.

Ms Lau said that “I think what we might see is a watered down version of 2012, but we’re not as pessimistic that it would be like 2011 again.”
Optimism over China’s economy rose after HSBC’s preliminary survey showed manufacturing activity there quickened to an 18 month high in July, suggesting that government measures to stimulate the economy had been effective.”

Some analysts said that more stimulus may be needed to counter a cooling property market and increasing risks in the financial system, such as deteriorating credit quality.

Source – Reuters


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