China's iron ore futures extended their year-end rally to climb 2 per cent on Wednesday, as investors rode a wave of feel-good sentiment which buoyed hopes that a recovering steel sector would help lift ore prices out of a year-long slump.
Iron ore futures for May delivery on the Dalian Commodity Exchange rose 2.02 per cent to 506 yuan a tonne by 0530 GMT, after striking a seven-week high of 516 yuan earlier in the session.
The most-traded May rebar contract on the Shanghai Futures Exchange was up 0.15 per cent at 2,586 yuan.
Some analysts said the rise in iron ore was bolstered by signs of restocking by Chinese steel mills, which helped drive a 4.8 per cent jump in spot prices to close at $71.20 a tonne on Tuesday, according to data compiled by the Steel Index.
Hit with a double whammy of cooling Chinese demand and a flood of new supply, iron ore prices are trading near a five-year trough and are on track for a 47 per cent drop this year - making it the worst performing major commodity of 2014.
However, hopes of a recovery in 2015 have helped drive a rally this week.
"Some steel mills have started restocking on iron ore as their cash flow situation has improved," said Wang Nan, a Hangzhou-based analyst at Zheshang Futures brokerage, adding that a wave approvals for infrastructure projects in the fourth quarter also fuelled expectations that steel demand growth would accelerate next year, Wang said.
Beijing has approved 1.38 trillion yuan of infrastructure projects in the fourth quarter, according to local media reports.
"Worries about a weak housing market have already been priced in and investors are now looking for more positive news."
However, some experts dismissed the rally as speculation by funds taking advantage of thin year-end liquidity and said the steel sector remained vulnerable to a listless property market, oversupply and threats of the export market being shut.
Physical steel demand also remains sluggish and a rise in rebar futures last week was largely triggered by news that Hebei Iron and Steel Group, the country's top steelmaker, had set a base price of 2,600 yuan a tonne in a bid to end a bitter price war in the market.
Disappointing data, which showed China's factory sector shrank for the first time in seven months in December, also indicates the world's second-largest economy is not out of the woods yet.
The final HSBC/Markit Purchasing Managers' Index (PMI) for December came in at 49.6, just below the 50.0 level that separates growth from contraction. The number was slightly higher than a preliminary "flash" reading of 49.5, but down from the final 50.0 in November.
Source: ET
- metaljunction »
- Metal News
Metal News & Events
METALJUNCTION PUBLICATIONS
Coal Insights (English) Monthly
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
India Steel Market Watch (English) Monthly
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.