Chinese steelmaking raw materials futures surged on Thursday as the country's mills are replenishing stockpiles amid a surge in production and some investors bought futures to close out bets that prices would fall. The most-traded iron ore futures on the Dalian Commodity Exchange surged more than 5 percent to a session high of 420 yuan ($62.98) a tonne, hitting its highest in two weeks. It was 4.2 percent higher at 414.5 yuan by the midday break.
Chinese steel mills are raising their production and have increased their restocking of iron ore, driving spot prices. China's big steel mills produced 1.759 million tonnes of crude steel per day in the first ten days of September, up 4.6 percent from the preceding period and the highest since June, according to a report on the steel-trading platform Xiben New Line E-Commerce citing data from the China Iron & Steel Association.
Investors were also buying back futures to close their bets that prices would fall. Iron ore futures dropped 14 percent from August 24 to September 19 before rising the past two sessions. Rising spot prices of iron ore also encouraged the short-covering as market participants expect the 70 yuan a tonne gap yesterday between futures and spot prices to narrow, said a futures trade in Shanghai.
"The short-term fundamental outlook for iron ore remains firm - high production rate at steel mills and rising restocking," said the trader. Futures need "to restore the gap, while short covering also accelerated the gains." Open interest of the January iron ore futures contract tumbled 4.4 percent to 1.61 million lots in the morning trade.
Tighter supplies of coking coal and coke driven by China's environmental crackdown on coal mines has also boosted the two steelmaking ingredients. On the Dalian Commodity Exchange, coke futures surged 6 percent to a session high of 1,268.50 yuan and coking coal gained 4 percent to 965 yuan during morning trading.
The most-traded rebar on the Shanghai Futures Exchange rose 2.2 percent to 2,309 yuan a tonne by the midday break. Iron ore for delivery to China's Tianjin port traded 10 cents higher at $55.40 a tonne on Wednesday, according to The Steel Index.