Iron ore futures in China climbed 4 percent on Monday, backed by stronger steel prices as output cuts slashed inventory of some steel products in the world's top consumer, helping tighten the market. Stocks of rebar, a steel product used in construction, stood at 3.647 million tonnes at 28 major cities in China on December 18, down 0.8 percent from the previous week, according to data tracked by industry consultancy SteelHome.
Production cuts by unprofitable Chinese steel mills and forced shutdowns of plants in Beijing's smog fight helped rebar prices rebound, said Helen Lau, analyst at Argonaut Securities in Hong Kong. Lau said the next key focus would be China's unveiling of its plan to speed up consolidation of its steel capacity, which should be "positive catalysts for oversold steel (companies) who are trading at less than half of book value."
The most-traded May rebar on the Shanghai Futures Exchange closed up 3.1 percent at 1,749 yuan ($270) a tonne, after rising as far as 1,757 yuan earlier, its highest since November 17. On the Dalian Commodity Exchange, May iron ore ended 4 percent higher at 309.50 yuan per tonne. It rose as much as 4.5 percent to 311 yuan, its loftiest since November 26. Whether steel prices sustain the gains may be key to iron ore extending a rally. But traders doubt steel demand could pick up strongly amid the winter lull in the construction sector.
"Spot steel prices have dropped a bit over the weekend in Tangshan. Buying interest has decreased, which shows demand is still slow," said a Shanghai-based trader. Reflecting weak demand, Baoshan Iron and Steel, China's biggest listed steelmaker, said it would keep prices of its main products unchanged in January. THE Baosteel is selling 40 percent stake in stainless steel joint venture, Shanghai Krupp Stainless. The decision follows the sale of a 55 percent stake in the venture by Finland's Outokumpu in October, as Europe's largest stainless steel company looked to reduce debt.
While steel stocks have dropped, inventory of imported iron ore at China's ports rose further to 92.35 million tonnes on Friday, the highest since early May, based on SteelHome data. "We believe that port stocks can rise further due to weak restocking demand by Chinese steel mills," ANZ Bank said in a note. Benchmark 62-percent grade iron ore for delivery to China's Tianjin port jumped 2.1 percent to $39.30 a tonne on Friday, according to The Steel Index. The spot price rose 6.2 percent last week, ending a four-week slide that dragged it to $37, its lowest since at least 2008.
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