Steel and iron ore futures in China climbed to their highest levels in two weeks on Tuesday, buoyed by hopes that government efforts to stimulate the economy would spur demand for the two commodities.
China has since April been steadily fueling economic activity by reducing the amount of cash that some banks have to hold as reserves to increase lending, instructing regional governments to quicken spending, and hastening the construction of railways and public housing.
Chinese steel and iron ore futures stretched gains from Monday even as equities retreated after racing to 7-1/2-month peaks.
A private sector survey showed growth in China’s services sector slowed sharply in July to its lowest level in nearly nine years, indicating a recovery in the broader economy is still fragile and may need further government support. [ID:nL4N0QA16T]
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange hit a session peak of 3,123 yuan ($506) a tonne, its highest since July 17. It was up 1 percent at 3,115 yuan by midday.
Iron ore for delivery in January on the Dalian Commodity Exchange , the most active contract, rose to 692 yuan a tonne, a level last seen on July 18, before paring gains to 688 yuan, up 1.8 percent.
While supply from top Australian and Brazilian miners remains brisk “demand from Chinese mills is also quite healthy”, said a Shanghai-based iron ore trader.
“There’s no lack of offers in the market but we continue to see interest from medium-sized mills to buy forward cargoes,” he said.
Some bigger mills were still offloading cargoes from their long-term contracts, said the trader who sold two capesize iron ore cargoes on behalf of mills in northern China in July and is working on another cargo this month.
Top miner Vale is offering to sell via a tender 42,111 tonnes of 63.17 percent-grade iron ore arriving in China in early September, traders said.
Stocks of imported iron ore at China’s ports fell for a second straight week to 111.95 million tonnes on Aug. 1, according to industry consultancy SteelHome.
The level has dropped from a record high 113.7 million tonnes reached in early July but remained 29 percent up for the year.
Commonwealth Bank of Australia said there needs to be “a more substantive decrease in port stocks to outweigh the supply impulse coming through at the moment”.
“We expect iron ore prices to firm later in the year but in the short term believe it will struggle to lift without a stronger turnaround in the levels of iron ore port stocks,” the bank said in a note.
Iron ore for immediate delivery to China <.IO62-CNI=SI> rose 0.2 percent o $95.40 a tonne on Monday, according to data compiled by Steel Index.
Rebar and iron ore prices at 0337 GMT
Contract Last Change Pct Change
SHFE REBAR JAN5 3115 +31.00 +1.01
DALIAN IRON ORE DCE DCIO JAN5 688 +12.00 +1.78
SGX IRON ORE FUTURES AUG 96.5 +0.33 +0.34
THE STEEL INDEX 62 PCT INDEX 95.4 +0.20 +0.21
METAL BULLETIN INDEX 95.17 -0.67 -0.70
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
(1 US dollar = 6.1756 Chinese yuan)