Iron ore futures rebounded from previous losses and rallied further, due to lower steel inventory and market talks of ramping up steel output.
The most-traded iron ore contract on China’s Dalian Commodity Exchange (DCE), for September delivery then surged up by 3.56% day-on-day or up RMB 36 to RMB 1,048.50/mt on Thursday.
The steel rebar contract on the Shanghai Futures Exchange, however dipped slightly by 0.47% or up RMB 24 day-on-day to RMB 5,107/mt.
Market talks of boosting steel production
Some trade sources linked the rally to market talks of mills outside of Tangshan, trying to increase steel productions before the end of the month-long inspection checks.
As some mills expected that the output curb to expand further to other regions outside of Tangshan, thus it may be the good opportunities to ramp up production for those mills that were not covered by the policy yet.
Therefore, there was speculation that these ex-Tangshan mills might increase output in near term before the Chinese authorities cramped down on them and forced more mills into suspension that did not comply with the strict environmental standards.
Lower steel inventory amid higher output
Market participants were also boosted by higher steel consumption, which drew down rebar inventory despite higher weekly productions.
According to Mysteel, the total rebar inventory dropped by 6.23% on-week to 14.35 million mt during the week ended at Apr 15, despite slight increase in rebar production at 0.39% on-week to 3.58 million mt.
This implied that the rebar steel demand remained high due to the construction season and resulted the domestic prices of HRB400 20mm dia rebar to rise for second consecutive day to RMB 5,100/mt as of Apr 14.