Production of steel reinforcement bars rose 14 percent to 113 million metric tons in the first seven months and stockpiles slumped 35 percent from an all-time high, data compiled by Bloomberg show. Rebar, accounting for almost one-third of steel output in China, will average 4,000 yuan ($655) a ton in the fourth quarter, 7.1 percent more than now and the highest in more than a year, according to the median of 15 analyst estimates.
The appetite for steel suggests sustained demand for commodities, even as Premier Li Keqiang tries to curb excess lending and shutter inefficient plants in industries from metals to cement. Imports from copper to crude oil are rebounding as manufacturing data add to signs that China will meet Li’s 7.5 percent growth target this year.
“The overcapacity that everybody was so worried about is turning out to be moot because 2013 is shaping up as a record year for steel demand,” said Jia Liangqun, chief analyst at Mysteel Research (300226), the Shanghai-based company that provides data to the National Development and Reform Commission. “To reduce the pain as it rebalances the economy, the government has no choice but to keep doing one of the things it does best -- investment in infrastructure, real estate and fixed assets.”
Rebar advanced 10 percent to 3,735 yuan on the Shanghai Futures Exchange since reaching this year’s low on June 14 and may extend the rally to 20 percent by the end of 2013, meeting the common definition of a bull market. The forecasts in the Bloomberg News survey of analysts ranged from 3,800 yuan to 4,200 yuan.
The metal remains 5.6 percent below its closing level at the end of last year, compared with a 1.7 percent gain for the Standard & Poor’s GSCI gauge of 24 commodities. The MSCI All-Country World Index of equities added 8.9 percent and the Bloomberg U.S. Treasury Bond Index lost 3.8 percent.
Hebei Iron & Steel Co. (000709), China’s biggest producer, may double profit per share this year, according to the average of four analysts’ estimates compiled by Bloomberg. Rising rebar prices should help most of the nation’s mills, which make almost one in every two tons of the world’s steel.
“We’re running our mills at record rates and inventory still hasn’t increased,” Liu Chunjian, Hebei Iron & Steel’s deputy head of marketing in Beijing, said by phone on Aug. 28.
Growth in demand for steel may be crimped by government efforts to tighten lending and toughen approvals for new homes as it seeks to curb surging housing costs. New-home prices increased for a third month in July in all but one of 70 cities tracked by the government, rising 17 percent from a year earlier in the southern business center of Guangzhou, the National Bureau of Statistics said Aug. 18.
China Railway Corp., which took over the network of the dismantled Ministry of Railways in March, is facing its highest borrowing costs in two years, a month after Li said that new railroads were key to stimulating the economy. The company sold seven-year notes at 5.06 percent on Aug. 26, 49 basis points more than a similar-maturity offer in October and the highest for that tenor since 2011, data compiled by Bloomberg show.
Still, the government looks more likely to support infrastructure and property investment than to curb them, Macquarie Group Ltd. analysts led by Jiong Shao in Hong Kong said in a report Aug. 19. Investment in infrastructure will expand 20 percent this year, creating demand for another 135 million tons of steel, according to Jiang Yujiao, an analyst at Citic Securities Co. in Shanghai.
Concrete reinforced with rebar will be used in almost every bridge, station and rail tie along 23,000 kilometers (14,000 miles) of track being built by the end of 2015 to meet the government’s expansion target, according to Wu Wenzhang, head of research at Shanghai Steelhome Information Technology Co.
Inventories of rebar held by traders in China dropped to 6.59 million tons in the week through Aug. 30, from 10.18 million tons in March, according to Shanghai Steelhome.
Steel prices have also strengthened in other regions. Rebar in the 28-nation European Union advanced 6.5 percent to 492.50 euros ($650) a ton since the start of July, data from Metal Bulletin show. U.S. prices for hot-rolled coil, used in construction and cars, jumped 15 percent since the end of May, according to Steel Index Ltd.
Global steel prices may increase 4 percent on average in 2014, following two consecutive annual drops, according to MEPS (International) Ltd., the Sheffield, England-based industry consultant.
Shares of Hebei Iron & Steel advanced 6.6 percent since the end of July, paring this year’s decline to 27 percent. The Shijiazhuang, Hebei-based company will report earnings per share of 0.018 yuan in 2013, compared with 0.01 yuan in 2012, the mean of four analyst estimates shows.
Wuhan Iron & Steel Co. (600005), the second-largest China-listed mill, gained 4.9 percent last month and four of the six analysts tracked by Bloomberg recommend buying the shares. The Wuhan, Hubei-based company will report net income of 777.5 million yuan this year, from 210 million yuan in 2012, according to the mean of five analyst estimates compiled by Bloomberg.
An official purchasing managers’ index for China rose to a 16-month high of 51.0 in August, the government said Sept. 1. Readings above 50 signal expansion. The economy will grow 7.5 percent this year and 7.45 percent in 2014, according to the median of economist estimates compiled by Bloomberg.
Rates for Capesizes, the biggest iron-ore carriers, more than quadrupled to $19,811 a day this year, according to data from the London-based Baltic Exchange, the publisher of shipping costs along more than 50 maritime routes. Chinese iron-ore imports rose 17 percent to a record 73.14 million tons in July, customs data show.
Iron ore at China’s Tianjin port, a global benchmark, rose 24 percent to $138 a ton since the end of May, according to Steel Index Ltd. Daily crude steel output increased to an averaged 2.15 million tons in the first seven months, from 1.95 million tons a year earlier, according to China International Capital Corp.
“Market sentiment always swings between despair and hope for rebar,” said Kai Ma, a Beijing-based analyst at CICC. “But as long as property and infrastructure keep growing, demand will hold up.”
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