Chinese Rebar Futures Climbed 2% on Expectations for Post-winter Demand

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Gaining for a second straight day on Tuesday, Chinese rebar futures jumped 2% on hopes that steel demand in this country, the world's top consumer, would bounce back sharply when production cuts are lifted after winter.

Rebar price was also supported by tighter supply as the winter output curbs are enforced.

On the Shanghai Futures Exchange, the most-active rebar contract for May delivery rose by 2% at 3,738 RMB ($563) per tonne by 0229 GMT.

The price of raw material iron ore was lifted by the gains in steel price. On the Dalian Commodity Exchange, the most-traded iron ore for January delivery jumped 1% at 470 RMB per tonne.

Iron ore for delivery to China's Qingdao port rose 1.4% to $63.47 per tonne on Monday, the highest since Sept. 27.

The increase in iron ore price came even as stockpiles of the steelmaking commodity continued to rise in China. Inventory of imported iron ore at China's major ports reached 138.48 million tonnes as of Friday, the most since Aug. 4. 

"We have been cautious in reading too much into port stockpiles given that a large proportion of it is low-grade," said Commonwealth Bank of Australia analyst Vivek Dhar.

"China's steelmakers have shown a preference for higher grade ores, as well as lumps, to boost productivity and limit emissions. That preference, which looks structural, suggests that the iron ore market is segmenting based on quality."

Chinese rebar photo

As you may have known, Chinese steel mills, mainly across the country's north, have been ordered to cut output during winter (from this month through March) as part of Beijing's campaign to limit air pollution.

"Investors continue to look towards the pent up demand in early 2018 when the winter production constraints are removed," ANZ analysts said in a note.

Inventory of rebar among Chinese traders had dropped to 3.61 million tonnes as of Nov. 17, the lowest level in a year. 

Steel inventory at both distributors and mills have been dropping, reflecting the winter production cuts, according to Morgan Stanley analysts said. ($1 = 6.6384 RMB)

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