Iron ore futures in China surged more than 5 percent to a record high on Tuesday, pushed by a sustained rally in steel prices as investors bet on strong demand and tighter supply as Beijing tackles excess production capacity. Other steelmaking raw materials coking coal and coke also extended gains amid possible curbs on coal output and China's suspension of North Korean coal imports.
"Revival of infrastructure investment has been driving demand for steel and hence iron ore," said Wang Fei, analyst at Hua'an Futures in Hefei in eastern China. Traders and analysts expect construction and industrial activity to gain steam from March when spring begins. The most-traded iron ore on the Dalian Commodity Exchange rose as far as 741.50 yuan ($108) a tonne, its strongest since the bourse launched the contract in October 2013. At 0240 GMT, it was up 4.5 percent at 736.50 yuan.
Rebar on the Shanghai Futures Exchange was last up 2.7 percent at 3,613 yuan per tonne. The construction steel product touched 3,630 yuan earlier, its loftiest since February 2014. Iron ore has piggybacked on the strength in steel prices, and the rally comes despite a rising mountain of the raw material at Chinese ports.
Stockpiles of imported iron ore at major Chinese ports reached 127.55 million tonnes, the most since at least 2004, according to data tracked by SteelHome consultancy. "Overall investors remain bullish on steel and coal on a flurry of government announcements to cut steel capacity and curb coal output," said Wang. China has strengthened its campaign since last year to slim down its bloated steel and coal industries, tackling the glut-hit sectors that have also contributed to the excessive smog in its major cities.
Coking coal futures on Dalian rose 1.3 percent to 1,270 yuan a tonne and coke advanced 2.1 percent to 1,755 yuan. China's top coal producers will meet on Tuesday to discuss plans for stabilising output this year, the official Shanghai Securities News reported. China stopped all imports of coal from North Korea from Sunday, the country's commerce ministry said in a notice on its website.