China's iron ore futures rose nearly 4 percent on Friday alongside steel prices, as investors banked on firm steel demand from manufacturers and construction projects. The official Purchasing Managers' Index (PMI) fell to 49.2 in February from 49.5 in prior month, official data showed on Thursday, but total new orders - an indicator of future activity - edged back into expansionary territory, suggesting some improvement in domestic demand.
"More new orders indicate demand from the manufacturing industry is stabilising. Meanwhile more infrastructure projects are expected to start construction, which would further support fundamentals of the steel market," said analysts from CITIC Futures in a note in Mandarin. The market also expects China's leaders to offer plenty of assurances in parliament next week that Beijing will do more to help struggling small businesses, boost demand and safeguard jobs.
Benchmark construction steel rebar prices on the Shanghai Futures Exchange rose 2.2 percent to 3,815 yuan ($569.28) a tonne. Hot-rolled coil, a manufacturing-grade steel product, climbed 2.1 percent to 3,825 yuan. Total steel inventory at Chinese traders rose by 695,600 tonnes this week as of March 1 to 18.67 million tonnes, according to data compiled by Mysteel consultancy, indicating that traders are actively purchasing products from mills in expectation of strong downstream demand. Stocks of construction product rebar at traders increased 6.8 percent to 10.19 million tonnes this week, while hot-rolled coil stocks edged up 0.3 percent to 2.75 million tonnes.
Prices of the steelmaking raw ingredient also rose on Friday, due to expectations that steel mills will look to replenish stocks. The most-active iron ore futures closed 3.7 percent higher to 625.5 yuan a tonne. Coking coal contract gained 1.6 percent to 1,313.5 yuan a tonne, while coke futures climbed 2.3 percent to 2,168 yuan. Weekly utilisation rates at steel mills across the country were steady at 65.75 percent this week as of March 1, Mysteel data showed.
On Friday, China's top steelmaking city Tangshan issued a level 1 smog alert, the highest in the country's four-tier pollution warning system. Steel mills in the city will have to curb output by 40-70 percent or even stop production during the alert, which is effective from March 1 until March 6.
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