China rebar, iron ore futures rise after improved PMI, stay off highs

2014-05-23

Chinese steel and iron ore futures rose on Thursday, supported by an improved manufacturing activity gauge, but persistent uncertainty over the outlook for demand pulled prices off the day's highs.

Spot iron ore also recovered from a 20-month low after a rapid drop in prices spurred some Chinese steel mills to replenish inventory, although supply availability remains high.

The most-active rebar for October delivery on the Shanghai Futures Exchange closed 0.3 percent higher at 3,079 yuan a tonne, well off the session's peak of 3,116 yuan. The contract fell to an all-time low of 3,055 yuan on Wednesday.

The HSBC Flash China Manufacturing Purchasing Managers' Index recovered to a five-month high of 49.7 in May from April's 48.1, beating a Reuters' poll forecast of 48.1.

The industry measure is a tad below the 50-point level that separates growth in activity from a contraction, indicating that manufacturers actually experienced a slight drop in business.

"The fact that PMI exceeded expectations supported sentiment and also prices went down too rapidly so there's some opportunity to buy low," said Zhou Ting, analyst at Jinrui Futures in Shenzhen.

Iron ore for delivery in September on the Dalian Commodity Exchange rose 1.1 percent to settle at 714 yuan a tonne, above a contract low of 695 yuan reached on Tuesday, but below Thursday's peak of 725 yuan.

The June iron ore contract on the Singapore Exchange climbed 1.6 percent to $100 a tonne.

The fall from the session's highs for Chinese rebar and iron ore futures reflects hesitation among some market participants who doubt a strong rally could take hold given that the outlook for steel demand remains cloudy.

"Steel traders are not willing to restock in the near future because spot prices are still dropping, so they will lose more if they restock," said Ting.

Inventory of five major steel products held by Chinese traders fell to 15.29 million tonnes as of May 16, from 15.86 million tonnes the prior week, based on data from industry consultancy Mysteel.

Chinese steelmaker Yangang sold steel billet at 2,805 yuan a tonne in a tender on Wednesday, down 62 yuan from the previous week, but 15 yuan higher than the current spot rate, traders said.

FURTHER TO FALL?

But Chinese mills are buying some iron ore cargoes after a recent slide in prices. Iron ore for immediate delivery to China .IO62-CNI=SI climbed 1 percent to $98.50 a tonne on Wednesday, returning to Monday's level after falling to $97.50 on Tuesday, based on data from compiler Steel Index.

The low on Tuesday was its cheapest since Sept. 13, 2012.

"Since most of the mills haven't really cut output, there's no surprise that they are replenishing their inventory at lower price levels," said a trader in Shanghai.

Still, tight liquidity and expectation that prices could fall further are limiting purchases to short-term needs.

"I don't think any mill would consider the current price as a solid bottom for iron ore, maybe closer to $90 would be a stronger support," said the Shanghai trader.

Anticipation that a strike by tugboat workers in Australia's Port Hedland could disrupt supplies may have also supported a recovery in iron ore prices, which have fallen nearly 27 percent this year. Port Hedland handles about a fourth of global iron ore shipments.

BHP Billiton said on Wednesday it may seek government intervention to avert industrial action at the port.

Investment bank ANZ said the "impact of a supply disruption won't be felt immediately in China, buffered by record high port stocks."

Stocks of imported iron ore at Chinese ports stood at a record high 112.55 million tonnes last week, said Steelhome.

Source from : Reuters

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