China's steel futures hit 1.5-month peak on falling inventories

Beijing

CHINA'S steel rebar futures extended gains on Tuesday to their highest in a month-and-a-half as concerns over weak demand subsided amid declining inventories.

Construction steel rebar contracts for October delivery on the Shanghai Futures Exchange closed 1.5 per cent higher at 3,562 yuan (S$747) a tonne. They peaked at 3,589 yuan a tonne, the highest since March 9, in early trade.

Over the weekend, China's biggest privately owned steel company Jiangsu Shagang Group increased rebar prices by 120 yuan to 3,940 yuan for late April delivery, prompting more mills to raise prices on Monday.

Spot steel prices climbed to their strongest level in one month, up 0.6 per cent to 4,193.97 yuan a tonne on Monday, according to data from Mysteel consultancy.

"The market mood is temporarily enthusiastic amid continuous release of (pent-up) demand and positive economic policies," Orient Futures analysts wrote in a note.

Meanwhile, rebar inventories continued to decline for the sixth straight week through April 20. Mysteel data showed inventories dropped 5.9 per cent to 15.02 million tonnes, the lowest level since early February.

The most-traded iron ore futures on the Dalian Commodity Exchange lost some gains during afternoon trade and settled 0.3 per cent lower at 470 yuan a tonne.

"We are seeing a drawdown on steel inventories, (although) rebound in steel demand post Chinese New Year was slower than expected, but ... we are seeing healthy course of demand and reducing steel inventories," said Greg Lilleyman, chief operating officer at Fortescue Metals Group (FMG), on a call with reporters and analysts after reporting its quarterly production report.

FMG reported a 2 per cent fall in third-quarter iron ore shipments on reduced demand in China, while the discount for its lower quality ore also widened.

"We are also seeing in parallel increasing interest in the lower grade ores and even a slight drawdown on iron ore stocks in China as well ... and we will see that continue over the course of the quarter," said Mr Lilleyman.

Coking coal prices advanced 2.4 per cent to 1,182 yuan a tonne, while coke contracts went up 2.5 per cent to 1,938.5 yuan a tonne, also buoyed by the news that industrial associations are considering reducing output by at least 15 per cent.

According to Mysteel data, the capacity utilisation rate at steel mill blast furnaces across China continued to climb.

It increased by 0.28 percentage points to 62.27 per cent last week compared with a week earlier, the highest level since early November.

China's Magang Group Holding (Masteel) permanently shut a small blast furnace, with annual capacity of around 580,000 tonnes, on Tuesday. It also plans to phase out another blast furnace and a sintering machine later this week. REUTERS