Iron Ore Jumps in China as Steel Inventory Drop Signals Demand

  • Rebar stockpiles contract for 11 of past 13 weeks: Steelhome
  • ‘Matter of time before a sell-off starts,’ Huatai Futures says

Iron ore futures in China climbed the most since trading started in 2013 as rebar stockpiles continued to shrink, signaling the surge in steel production to a record may have further to run to satisfy demand.

Futures advanced 5.6 percent to 367 yuan ($55.91) a metric ton on the Dalian Commodity Exchange. In Singapore, the SGX AsiaClear contract for September gained 5.3 percent to $44.70 a ton. Miners BHP Billiton Ltd., Rio Tinto Group and Fortescue Metals Group Ltd. all rose at least 3.7 percent in Sydney.

Producers in China churned out a record amount of steel on a daily basis in April as they responded to a spurt in prices that rescued margins. Figures for May are due on Sunday. The industry remains wracked by chronic oversupply and is reliant on exports to clear its surplus.

“Steel inventories continue to decline, showing that the surge in output has not been enough so far to replenish inventories,” Xu Ke, an analyst at Huatai Futures Co. in Shanghai, said by phone. “Fundamentally, China’s steel industry remains oversupplied. It’s a matter of time before a sell-off starts again.”

The gains in Asia preceded Monday’s 2.1 percent increase in Metal Bulletin Ltd.’s benchmark price. Ore with 62 percent content rose to $51.11 a dry ton today after jumping 3.9 percent Friday. That’s still well shy of April’s high of $70.46 a ton after prices collapsed due to a regulatory crackdown on speculators and an increase in supply.

Stockpiles Contract

Inventories of reinforcement bar in China, which makes half the world’s steel, have shrunk 11 of the past 13 weeks, and were at 4 million tons in the period to June 3, according to Shanghai Steelhome Information Technology Co. Iron ore port reserves also moderated, falling 0.4 percent to 100.25 million tons.

Demand for iron ore may decline as steel prices abate, according to Axiom Capital Management Inc. Rebar prices in Shanghai sank 23 percent in May. Output in China will shrink at an accelerated pace as small mills idle production again, New York-based analyst Gordon Johnson said in a note Monday.

The purchasing managers’ index for China’s steel industry in May showed a drop in the production gauge. The overall reading was 50.9 from 57.3 in April, with 50 the dividing line between expansion and contraction.

“June usually marks the start of a seasonal lull for steel demand,” Maike Futures Co. said in a report Monday. The retracement in steel prices will squeeze mills’ margins, hurting demand for iron ore, they wrote.

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