Chinese iron ore futures soared nearly 7 percent on Thursday, hitting their highest in almost one month, amid expectations that a move by China's central bank to reduce the amount of cash lenders keep as reserves would help spur steel demand. But some traders also say speculative trading activity may be behind the price surge, with supply of the steelmaking raw material staying high.
Along with iron ore, other China-traded commodities also surged, including rubber, nickel, aluminium and zinc. The most actively traded iron ore for September delivery on the Dalian Commodity Exchange closed up 6.5 percent at 475 yuan ($76) a tonne, just off a session high of 476 yuan, its loftiest since March 23.
China's central bank unexpectedly said late on Tuesday it will reduce the cash banks hold as reserves by 100 basis points from April 25, helping fuel a rally in prices of steel and its raw materials on Wednesday. "What our central bank did will give some support to real estate projects, so there should be support for steel demand in the short to medium term," said a Shanghai-based iron ore trader.
But he said the price increase in iron ore futures, which added to Wednesday's 2.1 percent spike, may be temporary. "This could be short-lived because we may also be seeing some speculative money," he said. Prices of steel and its other raw materials also scaled multi-week highs.
Coke futures on Dalian rose 3.3 percent to end at 1,893.50 yuan a tonne, after jumping 4.8 percent on Wednesday while coking coal climbed 2.5 percent to 1,174.50 yuan. Rebar on the Shanghai Futures Exchange increased 2 percent to 3,516 yuan per tonne, having climbed nearly 2 percent in the session before. Stocks of iron ore at China's main ports stood at 160.1 million tonnes on April 13, not far below a record high of 161.68 million tonnes reached at the end of March, data compiled by SteelHome consultancy showed.
BHP Billiton Ltd, the world's No. 3 iron ore producer, cut its 2018 fiscal year iron ore output guidance by 2 percent to 272-274 million tonnes, citing issues in its railroad car unloading system. The reduction in BHP's output forecast was marginal and could be filled by other suppliers, the Shanghai trader said. Iron ore for delivery to China's Qingdao port rose 2.1 percent to $65.88 a tonne on Wednesday, the highest since March 22, according to Metal Bulletin.
China said it will ban the imports of 16 more scrap metal and chemical waste products from the end of this year, including steel smelting slag containing more than 25 percent of the metal manganese, and ethylene polymer waste.
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