China’s Steel Futures Jump as Nation Pledges Railway Spending

Updated on
  • China to invest at least 2.8 trillion yuan, says newspaper
  • Prices also helped by nation’s pledge to reduce capacity

China’s steel futures jumped to the highest level in seven weeks after the government said it plans to expand the country’s railway network, helping to boost sentiment at a time of low stockpiles.

China approved the rail-network plan, which includes encouraging private investment, according to a government statement Thursday following a State Council meeting chaired by Premier Li Keqiang. The expansion will be made via a minimum investment of 2.8 trillion yuan ($421 billion) in the five years to 2020, according to the Economic Information Daily, a state-owned newspaper. Calls to the press office at the State Council weren’t answered.

Reinforcement-bar futures for October delivery on the Shanghai Futures Exchange gained as much as 4.6 percent to 2,345 yuan a metric ton, the highest for the most-active contract since May 4, before closing at 2,337 yuan on Thursday.

“China’s plan to expand the railway network, and its recent reiteration of reducing steel-making capacity, is bullish in the long-term,” Wei Junyi, an analyst at Huatai Futures, said by phone from Shanghai. The market is also reacting to low inventory levels, he said.

The country will cut 45 million tons of steel-making capacity this year, Xu Shaoshi, chairman of the top economic planning agency, the National Development and Reform Commission, said at a forum in Tianjin on Sunday. Earlier this year, the nation committed to reducing capacity by as much as 150 million tons through 2020.

Rebar steel inventory fell 2.4 percent last week to 3.79 million tons, the lowest level since January 22, according to data tracked by the Shanghai Steelhome Information Technology Co. Huatai’s Wei said the low stockpiles are helping offset weak seasonal demand.

— With assistance by Feiwen Rong

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