Iron ore futures rose on market expectation of better steel demand for post-Lunar New Year period.
The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE), then surged up by 2.39% day-on-day or RMB 25 to RMB 1,071.50/mt on Wednesday.
The steel rebar contract on the Shanghai Futures Exchange also increased slightly by 0.78% or RMB 34 day on-day to RMB 4,404/mt.
Expectation of better steel demand post-Lunar New Year
Trade participants had anticipated better post-Lunar New Year demand that led to supportive futures market, though the physical market activities were thin as Lunar New Year holidays approached.
The bullish market sentiment was backed up by high China’s iron ore consumption rate, which was estimated at around 100 million mt per month, as the Beijing policymakers sought to kickstart its economy via infrastructure stimulus packages.
So far, China imported around 1.17 billion mt of iron ores in 2020, up 9.3% on-year, and it is estimated that the iron ore import volumes may reach 1.27 billion mt in 2021.
Negative steel margins in January
Despite market optimism, there was some market concerns over negative steel margins in January, due to high raw material costs like iron ore and coke.
According to Mysteel, the rebar margins posted an average gross loss of RMB 98/mt in January, while the margin losses for hot-rolled coils (HRC) and medium plate average around RMB 32/mt.
The margins loss was mainly surveyed from 91 Chinese mills using blast furnaces, which were affected by lower steel prices amid high iron ore prices.