Shanghai steel futures closed higher on Thursday, boosted by hopes of more stimulus by China to support its economy impacted by the coronavirus outbreak, although gains were capped on caution over the country's record-high inventories.
Construction steel rebar on the Shanghai Futures Exchange extended gains into a fourth session, closing 0.6% higher at 3,469 yuan ($499.81) a tonne. During the session, it rose to its highest since February 24 at 3,496 yuan. Hot-rolled coil, used in cars and home appliances, and stainless steel both advanced 0.4%.
Activity in China's manufacturing and construction sectors is picking up after being stalled by the epidemic, but steel demand is sluggish, putting a strain on mills and traders who are sitting on huge stockpiles of steel products.
China's steel industry, which accounts for more than half of the world's output, is pinning hopes on more policy stimulus, including a cut in local short-term interest rates, to drive a recovery.
"There may still be room for short-term interest rates to fall," analysts at Huatai Futures Co Ltd said in a note.
After a 50 basis point emergency rate cut by the Federal Reserve this week, the People's Bank of China is widely expected to further lower financing costs for businesses via cuts in the interest rate or the reserve requirement ratio.
"While we doubt rate cuts will make a meaningful boost to aggregative demand, they may help to mitigate some potential strains in the financial system and lift sentiment," economists at ING wrote in a note.
Beijing has already introduced policies to provide tax and financing support for businesses hit by the epidemic, but grim February factory activity data highlighted the urgency of additional stimulus measures.
"The concern now is that the fear factor surrounding the outbreak will change corporate and consumer behaviour, prompting a wider demand shock," ING economists said.
Optimism over possible additional policy stimulus pushed iron ore futures higher, with the benchmark Dalian Commodity Exchange contract up 2.2%. Iron ore on the Singapore Exchange rose 1.2% in afternoon trade. Dalian iron ore has so far risen nearly 15% since hitting a three-month low of 580 yuan a tonne on February 10.
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