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Print[ferro-alloys.com]- Shanghai steel rebar futures gained for a fourth session in a row on Monday as falling inventories pointed to firm demand in top consumer China, which should back appetite for raw material iron ore.
The price increases in Chinese steel products have been modest, but they have been largely sustained since July and could stretch into August. These months were previously regarded as a weak steel consumption period as construction activity in China usually slows during summer.
Inventory of steel products held by Chinese traders have dropped to 14.2 million tonnes in late July from 20.6 million tonnes in mid-March, based on data compiled by Bank of America-Merrill Lynch.
Stockpiles of rebar, a steel product used in construction, fell to 6.3 million tonnes from 10.2 million tonnes over the same period, the data showed.
The most-traded rebar contract for January delivery was up 0.4 percent at 3,684 yuan ($600) a tonne by the midday break, after touching a more than one-week high of 3,688 yuan.
"August is usually not a good season for steel demand but this year has been very different," said a Shanghai-based iron ore trader.
Data pointing to a resilient services sector in China also supported sentiment. A private survey by HSBC released on Monday showed activity in China's services sector continued to expand in July. A similar government survey earlier showed the non-manufacturing sector picked up last month as support measures for small firms helped improve sentiment.
The latest data on China's non-manufacturing sector "provides evidence of the gradual rebalancing of the economy away from manufacturing exports and infrastructure investment,"
Ric Spooner, chief market analyst at CMC Markets in Sydney, said in a note.
The firm steel market in China, which accounts for nearly half the world's steel output, bodes well for iron ore, although traders say buying interest may not be as strong as in recent weeks.
Benchmark 62-percent grade iron ore .IO62-CNI=SI gained 0.3 percent to $130.10 a tonne on Friday, according to data provider Steel Index.
But the raw material still ended last week down nearly 2 percent, its steepest such fall since late May, after falling to two-week lows during the period.
"I think some mills who have restocked in the past two weeks may take a break but there might be other mills who want to buy some more material if they meet their target price," said the
Shanghai trader, who sees spot prices hovering around $130 this week.
China's steel output is expected to rise 9 percent from a year ago to a record high of about 780 million tonnes in 2013, the country's economic watchdog said on Friday. Shanghai rebar futures and iron ore indexes at 0356 GMT
Contract Last Change Pct Change
SHFE REBAR JAN4 3684 +16.00 +0.44
THE STEEL INDEX 62 PCT INDEX 130.1 +0.40 +0.31
METAL BULLETIN INDEX 130.21 -0.22 -0.17
Rebar in yuan/tone
Index in dollars/tonne, show close for the previous trading day
($1 = 6.1294 Chinese yuan)
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