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China iron ore, steel extend gains to 4th day on demand hopes
[MANILA] Steel and iron ore futures in China rose for a fourth straight day on Tuesday, backed by hopes construction activity would pick up next year to fill housing and property demand in the world's top consumer of both commodities.
Surging property prices and sales have prompted authorities to move to cool purchases in red-hot property markets, including in Shanghai and Tianjin, which last week imposed new borrowing restrictions.
Despite property sales in China increasing 27 per cent in January-October, construction activity has grown only by just over 3 per cent, said Commonwealth Bank of Australia (CBA) analyst Vivek Dhar, leading to low inventories. "Falling inventories mean that construction may be supported next year even if sales fall," Dhar wrote in a note.
Construction accounts for around 40 per cent of China's steel demand. Construction steel product rebar on the Shanghai Futures Exchange closed up 2.2 per cent at 3,217 yuan (S$610) a tonne.
On the Dalian Commodity Exchange, the price of steelmaking raw material iron ore rose 3.4 per cent to 604.50 yuan a tonne.
The sharp swings in futures prices suggest speculative investors remain in the market, traders say.
Volatility - which surged to near a record in November - in the most-active Dalian iron ore futures contract has sent global spot prices on a roller-coaster ride. The wild ups and downs are risky for traders and steel mills, some of whom are losing faith in a market swayed by speculative money. "I think speculators are still there, but the price moves may not be as crazy as in the last few weeks," said a Shanghai-based trader.
With the most-active futures contracts in both Dalian iron ore and Shanghai rebar switching to May from January since last week "that means more uncertainty for the market and many will not be so brave enough to put too much money there," he said.
Still, further strength in iron ore futures could push the spot benchmark back to near US$80 a tonne again.