Iron ore futures rallied as Chinese trade participants returned from holidays, despite market uncertainty on steel output curbs and power crunch in China.
The futures of Dalian Commodity Exchange (DCE) for January delivery then went up by 4.88% day-on-day or up RMB 35.50 to RMB 762.50/mt, during the day trading session on Friday.
The rebar futures also hiked up by 1.79% day-on-day or up RMB 101 to RMB 5,750/mt, during the day trading session.
High steel prices from prolonged output reduction
Some trade participants linked the rally to high steel prices as Tangshan billet price jumped to almost five months high at RMB 5,310/mt as Chinese participants returned from the weeklong holidays.
The high steel prices were supported by almost a 18 months low of daily steel production recorded in September 21-30 at an average of 2.59 million mt per day, down 5.6% over previous ten day period.
The low steel production is likely to persist into October, as steel mills were ordered by Chinese authority to slow or halt steel production for power rationing across Chinese provinces like Inner Mongolia, Shandong, Jiangsu and Fujian.
High steel stocks among Chinese mills
Despite the lower steel production, Chinese mills’ stockpiles had hiked up due to slowing demand during the weeklong holidays in early October.
According to Mysteel, the total inventories of five major steel products reached 5.2 million mt as of Oct 7, up 232,400 mt week-on-week.
Among the high stockpiles, the wire rods contributed much to the increment with a weekly hike of 16.9% over the Sep 30- Oct 7 period.