Chinese iron ore futures jumped more than 3 percent on Wednesday, stretching recent sharp gains to touch their highest since June as steel prices stayed firm on hopes of brisk seasonal demand. Some mills in Tangshan city, in China's top steel-producing Hebei province, are lifting output after a recent rally in prices, hoping the strength will last as construction activity increases, traders say.
"We have talked to a few mills in Tangshan who are restarting blast furnaces that they have put on maintenance because they are now making a small profit," said a Shanghai-based iron ore trader. The most-active May iron ore on the Dalian Commodity Exchange closed up 2.8 percent at 385.50 yuan ($58.86) a tonne after rising as far as 387 yuan, the highest since June 29.
On the Shanghai Futures Exchange, construction-used rebar touched a session-high of 2,009 yuan a tonne, just below Tuesday's peak of 2,010 yuan which was the strongest since August 24. Firmer ferrous futures are likely to extend gains in spot iron ore after it climbed back above $50 a tonne on Tuesday, when it jumped 3.1 percent to $50.40, according to data from The Steel Index. The spot benchmark hit $50.50 last week its highest since October. For the year, iron ore has risen 17.5 percent, outpacing gold to be among this year's top performing commodities.
China's plans to reduce overcapacity in sectors including steel also bode well for the sector, traders said, and could support prices more sustainably going forward. China said on Monday it expected to lay off 1.8 million workers in the coal and steel industries, or about 15 percent of the workforce, as part of efforts to reduce industrial overcapacity, and will allocate 100 billion yuan over two years to relocate laid off workers.
"Because production capacity will be restricted, this may bring some order to the industry and will help to stabilise demand," said the Shanghai trader. China's major steel mills added to their debt pile in 2015 while consumption of steel products fell for the first time in two decades, an industry official said. The debt ratio of major steel mills rose 1.6 percentage points to 70.1 percent from a year ago, taking the big mills' debt to 3.27 trillion yuan ($499 billion), Li Xinchuang, the vice secretary general of the China Iron and Steel Association, told a conference in Beijing.
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