Shanghai steel rebar futures hit one-month peaks on Tuesday as investors bid up prices after a holiday weekend amid optimism Chinese demand will remain firm after a sustained drop in stockpiles since the start of March.
Inventory of trader-held steel products in China, the world's biggest consumer, has fallen by nearly 2 million tonnes in the past five weeks, reflecting firmer demand. Consumption may strengthen further through May when demand for steel usually increases along with brisk construction activity.
Firmer Chinese equities also spurred steel and iron ore futures, helping them outperform other China-traded commodities, as banking shares rebounded on hopes the government would introduce more economic stimulus measures.
The most-traded rebar for October delivery on the Shanghai Futures Exchange hit a high of 3,425 yuan ($550) a tonne, its loftiest since March 6. It closed up 1.9 percent at 3,414 yuan.
The most-active September iron ore contract on the Dalian Commodity Exchange rose 3.1 percent to settle at 825 yuan per tonne, after peaking earlier at 833 yuan, a level last seen on Feb. 24.
Stockpiles of five major steel products fell to 18.67 million tonnes as of April 4 from 19.27 million tonnes the previous week, data from industry consultancy Mysteel showed. They have dropped continuously since the end of February when they stood at 20.33 million tonnes.
Stocks of rebar, a construction steel product that accounts for bulk of the inventory, stood at 9.34 million tonnes last week, down from 10.42 million tonnes at end-February, the data showed.
"Market participants are anticipating that consumption will rise further in April and May, and the government is also trying to stimulate the economy in the short term," said Zhou Ting, analyst at Jinrui Futures in Shenzhen.
Beijing has fast-tracked spending on railways and other projects in the country's poorer regions and also cut taxes for small businesses in a bid to prop up a slowing economy.
The plan is to add at least 6,600 kilometres of railway lines this year, 1,000 kilometres more than last year, at a cost of $24 billion. That should benefit the steel sector and help sustain gains in iron ore, said Morgan Stanley, which sees the spot price averaging at $120 a tonne in the current quarter.
Iron ore for immediate delivery to China rose 1.3 percent to $117.20 a tonne on Monday, the highest since April 1, according to data provider Steel Index.
The price spike, the raw material's third straight day of gains, was spurred by a few cargoes sold at higher levels on physical platform globalORE as overall trading activity was lean with Chinese markets shut on Monday for a public holiday.
Twenty-eight dry bulk vessels were chartered to haul spot iron ore cargoes to Chinese buyers last week, the most since the week ended Feb. 21, said Jeffrey Landsberg, managing director at Commodore Research & Consultancy
"China continues to show that its demand for high-quality iron ore imports that remain at still relatively cheap prices is very strong," Landsberg said in a note.
Stockpiles of iron ore at Chinese ports fell from a record level last week, dropping for the first time since December, to 107.65 million tonnes from 108.45 million tonnes the previous week, based on data from industry consultancy Steelhome. SH-TOT-IRONINV
"We anticipate these stockpiles will likely drop further in April as warmer weather combined with the push by the Chinese government should stimulate end-user demand," James Wilson, resources analyst at Morgans Financial, said in a note.
"We expect the iron ore price will remain well supported, but range-bound between $110-$120/tonne for much of April until those stocks are drawn down."