China iron ore extends gains to 3-year high, upbeat steel outlook

14 February 2017

China's iron ore futures rose for a sixth session in a row on Tuesday, hitting their highest in more than three years, amid firm steel demand in the world's top consumer and tighter supply driven by Beijing's campaign against smog.

As futures rallied, spot iron ore prices have similarly surged, with the spot benchmark topping $90 a tonne for the first time since 2014 on Monday.

"China's positive steel outlook is driven by ongoing supply tightness and sustained demand growth," Argonaut Securities analyst Helen Lau said in a note.

Lau said some Chinese steel mills in Hebei, Beijing and Tianjin have received orders from local governments to suspend steel production from the second half of February to the first half of March.

The most-traded iron ore on the Dalian Commodity Exchange rose as far as 716 yuan ($104) a tonne, its strongest since October 2013, and was trading up 0.5 percent at 703.50 yuan by 0316 GMT.

On the Shanghai Futures Exchange, rebar was up 0.2 percent at 3,407 yuan a tonne. It also marked the sixth straight day of increase for the construction steel product, which touched 3,450 yuan earlier, near Monday's two-month peak.

Amid a torrid rally in steel prices and other raw materials, China's producer price inflation picked up more than expected in January to near six-year highs, adding to views that global manufacturing activity is building momentum.

Besides regular environmental inspections conducted by Chinese authorities that have led to mills temporarily shutting their plants, the government plans to cut steel capacity by at least half in 28 cities across five regions during the winter heating season as Beijing intensifies its war on smog, a draft policy document shows.

Along with tighter supply, steel demand is also picking up after the Lunar New Year break and should strengthen during spring, traders say.Bids for physical iron ore cargoes have risen as futures rallied.

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB jumped 6.5 percent to $92.23 a tonne on Monday, the highest since August 2014, according to Metal Bulletin.It was the biggest percentage spike for the spot benchmark since last December.