Iron ore futures in China rose on Tuesday and showed their fifth increase monthly, while construction steel was the best month since July 2018, relying on hopes that demand will remain stable after the Labor Day holidays.
The reduction in iron ore and steel reserves in China prompted mills and traders to replenish reserves on the eve of a five-day weekend, which also helped support prices.
The futures markets of Dalian and Shanghai will be closed from Wednesday and reopen on Monday, May 6th.
The best-selling iron ore contract on the Dalian Commodity Exchange rose 2.1 percent to 639 yuan (US $ 94.84) ??per ton, reaching its highest level in two weeks.
Raw materials for steel production in April increased by almost 12 percent, mainly due to the supply shock after a catastrophic accident at the tailings mine and the subsequent closure of the mine in Brazil in the first quarter.
“On the eve of a long vacation in China, there are currently some replenishment efforts underway,” said Richard Lu, an analyst at CRU Consulting in Beijing. “Stocks continue to shrink throughout the supply chain, indicating that steel demand remains fairly good.”
Spot iron ore for delivery to China SH-CCN-IRNOR62, with a 62 percent fine, remained stable at $ 93.80 per ton on Monday, according to data tracked by SteelHome. According to Lu, after the recent rally, prices have stabilized at between $ 92 and $ 95 per ton.
The most active contract for rebar on the Shanghai Futures Exchange rose 1.8 percent to 3,828 yuan per ton after reaching a two-week high of 3,833 yuan earlier in the day. Construction steel rose 11.3 percent in April, the best of nine months.
"Seasonal improvement in demand will continue to support steel prices," said Lou, who does not rule out the possibility of restocking after the holidays. "Construction work usually resumes in May and June, when the weather is usually favorable."
Hot-rolled coil, semi-finished steel products used in cars and household appliances went up by 2.5 percent to 3,789 yuan per ton.
“No matter how high the demand, high steel production may prevent a sharp rise in prices,” said Lou.
Steel production in China, the world's largest producer and consumer of the alloy, rose to 80.3 million tons in March, which is 10.0 percent more than a year ago, as shown by the World Steel Association on Monday. Steel production in China is about half of world production.
Any further increase in iron ore production can also be muted, given the uncertain demand for steel in China, especially in the second half, and the fact that raw materials are now considered “too expensive,” Lu said.
“Steel mills only buy iron ore on demand. They want flexibility, ”he said, adding that the mills also became“ very cautious ”and selective in their purchases, since the high cost of raw materials reduces their profits.
Coke rose 0.8 percent to 2,046.5 yuan per ton, but coking coal broke the trend with a 0.2 percent drop to 1,352 yuan.
