Chinese iron ore futures rallied to a five-week peak on Thursday, riding on the strength of steel prices that traders thought were oversold as market participants anticipated the seasonal lull from June onwards.

Low steel inventory among traders also supported prices. That could keep production high among Chinese mills, ensuring demand for raw material iron ore.

“Steel got oversold in May because people pre-empted the (summer) lull,” said a Shanghai-based trader.

“I think demand will be stable or weaken slightly in July, but from August onwards, I see demand going up.”

Construction activity in China typically slows during the summer months from June through August, before picking up again as the weather cools.

The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange was up 1.6 percent at 2,148 yuan ($327) a ton by 0256 GMT, after peaking at a one-week high of 2,161 yuan earlier.

After a five-month rally, the contract fell more than 20 percent in May, the most since its launch in 2009.

China’s steel inventory has been declining for four consecutive weeks, standing at 8.97 million tonnes as of June 17, the lowest since end-January, Argonaut Securities said in a note.

Amid firmer steel prices, the most-active iron ore on the Dalian Commodity Exchange, was up 1.7 percent at 387.50 yuan a ton. It touched 392 yuan earlier, a level last seen on May 18.

As iron ore prices regain lost ground, “a lot of people are preferring to buy from the port because it’s cheaper”, the Shanghai trader said.

Benchmark 62-percent grade iron ore delivered to China’s Tianjin port climbed 2 percent to a one-week high of $51.70 a ton on Wednesday, according to The Steel Index, citing a pickup in physical activity.

That marked the biggest single-day rise for the spot benchmark since June 7.

 

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