Shanghai steel rebar futures rose on Monday to their highest in nearly seven weeks on expectations of firmer demand as China boosts spending on infrastructure and low-cost housing to support its economy.
It was the fifth day of gains for rebar futures, boding well for prices of raw material iron ore that have been gradually recovering from this year’s slump fueled by abundant supply.
China has completed construction of 2.8 million social housing units so far this year, while 5.3 million new starts of the 7 million planned have begun construction, achieving 58 percent of its 720 billion yuan ($116 billion) annual investment target, Standard Bank analyst Melinda Moore said in a note.
Beijing has also approved 44 of 64 new rail projects planned for this year and should approve the rest by end-August, Moore said.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange touched a session high of 3,154 yuan ($510) a tonne, its loftiest since May 28. It closed up 0.8 percent at 3,146 yuan.
China has been stepping up measures to stimulate its economy that grew by 7.4 percent in the first quarter, the slowest pace in six quarters.
Chinese cities, such as Hohhot and Jinan, have also been removing restrictions on home purchases to allow people to buy more properties.
These factors are driving steel prices higher, “but I don’t think they can last”, said a trader in Shanghai.
“The property market is still on a downward trend. For the second- and third-tier cities, there’s still an oversupply of properties and it remains a big problem.”
China’s economic growth is forecast to have steadied at 7.4 percent in April-June, according to a Reuters poll, and the cooling housing market may pose a significant risk to China’s economy if conditions deteriorate sharply.
Average home prices fell for the first time in May while new construction starts have tumbled.
China will release its second-quarter gross domestic product data on Wednesday.
Still, rebar’s gains helped lift iron ore futures, with the most-active September contract on the Dalian Commodity Exchange climbing 1 percent to end at 714 yuan a tonne.
The August contract on the Singapore Exchange gained 0.8 percent to $98.01 per tonne.
Iron ore for immediate delivery to China was unchanged at $96.90 a tonne on Friday, gaining 0.4 percent for the week, according to data provider Steel Index.
It was the fourth straight week of gains for the benchmark price, which has recovered almost 9 percent since falling to a 21-month low of $89 in mid-June.
Improving Chinese steel demand, a drop in Chinese iron ore production and a pause in expansion of iron ore capacity outside China should keep iron ore between $90 and $110 during the second half of 2014, Citigroup analysts said in a report.
“Prices should then fall again in 2015 as supply increases both in Brazil and Australia,” they said. Citi sees iron ore averaging at $90 next year.