SHANGHAI: Shanghai rebar futures extended gains on Tuesday, shrugging off a broad fall in commodities and equities, as investors looked into any potential impact to output due to power shortages.
The most active October rebar futures contract on the Shanghai Futures Exchange touched a high of 4,903 Yuan per tonne ($755) on Tuesday, the highest in more than a week.
"Investors are now speculating that electricity shortages might curtail steel output and instead support prices," said Jiang Zhiwei, an analyst with BOC International Futures.
Some local media reported that eastern China's Jiangsu province would be the region facing the most severe power shortage in summer, with demand outrunning supply to the tune of more than 11 million kilowatts.
Jiangsu is home to China's biggest private steelmaker, Shagang, and a large number of small-scale steel mills which depend heavily on electricity as they run electric arc furnaces instead of traditional blast furnaces.
Local media reports also said the provincial authorities had already talked to 10 major steelmakers about curbing power use.
"So far we are operating normally and we also have our own power generators to help with the lack of power supply," said a board secretary at a Jiangsu-based special steel producer.
An iron ore official at another special steel mill told Reuters that he was not aware of any production disruption at Jiangsu steel mills so far.
China has warned that power shortages this summer could be the worst for years, with power generation and transmission systems unable to cope with rising demand. The east, north and south of China are likely to be hit the hardest.
However, the slow pick-up in steel demand has capped gains for rebar with analysts expecting prices likely to fall in near future as steel demand growth will slow down in the second quarter compared from a year earlier.
"Steel consumption is still not strong under growing pressure of credit crunch, and it will be easy for steel prices to fall again," Jiang added.
Spot iron ore prices were flat on Tuesday as steel mills in China held back purchases ahead of the Labour Day holiday next Monday, and key indexes also slipped.
Traders had earlier expected steel mills to come back to the market, rebuilding inventories after putting off raw material purchases since mid-April. But many have readjusted their outlook.
"Steel mills are watching, and my customers said they might consider not buying until the end of May," said an iron ore trader in coastal Shandong province.
Iron ore prices hit $190 per tonne in early April, forcing steelmakers to refrain from buying as demand has been picking up much more slowly than traders had expected.
"Some steel mills have been active in buying Chinese ores instead of imported materials. However, I don't expect any big declines in ore prices in the second quarter," the trader added.
Spot offers of Indian ore with 63.5 percent iron were quoted at $185-187 per tonne on Tuesday, including freight, unchanged for around one week, traders said.
"Some are expecting a new round of price hikes in May, but the buying activity before the holiday will be very quiet," said a second trader in Beijing.
Key iron ore indexes, based on spot prices in China and used by global miners including Vale and Rio Tinto to make quarterly pricing, fell on Monday, reflecting thin buying in the world's largest consumer China.
Platts 62 percent iron ore index dipped $2 to $178.5 a tonne, its lowest since April 1, and Metal Bulletin's 62 percent gauge lost 31 cents to $178.79 a tonne, its lowest since April 7.
The Steel Index gained 40 cents to $178.9 a tonne.
Silver tumbled and Asian shares pulled back from recent three-year highs in a bout of profit-taking before the Federal Reserve meeting this week where investors are seeking clues on when it plans to begin exiting its ultra-easy monetary policy.
The most active ShFE copper contract, July, fell 1.8 percent to a low of 69,500 Yuan and the Shanghai composite index dipped by about 1 percent.
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