Iron ore future rose for the second consecutive day on better market outlook on anticipation of improved steel demand after rainy season in China.
The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange continued the upward trend with gains of 1.14% or RMB 9.50 day-on-day to RMB 841.50 a tonne on Wednesday.
The steel rebar contract on the Shanghai Futures Exchange also hiked up by 1.31% or RMB 49 to RMB 3,782 per tonne.
The worst is over?
Some market participants believed that the worst of the rainy season will be over soon, and steel demand is expected to improve later.
Besides, the steel margins are estimated at decent level of around RMB 300/mt. However, some trade participants expected a gradual improvement of steel demand in August before coming to a traditional peak period of September and October period.
Despite the good steel margins, most end-users prefer to secure mid-low grade fines as compared to the expensive high grade ore like Brazilian fines.
As they expected that high grade prices may soar higher after Vale’s announcement that it may reach lower end of its annual output guidance of 310-330 million mt due to impact of coronavirus pandemic.
More Chinese projects for second half of the year
China’s steel demand is likely to get a boost from commencement of 150 major water conservancy projects during the second half of the year onward over the period of 2020-2022.
According to China’s National Development and Reform Commission, the total investment of these projects will reach around RMB 6.6 trillion or $945 million, accounting for 12% of China’s total fixed asset investment completed in 2019.
These projects are likely to push ahead after the rainy season with urgency due to threats of floods especially in southern China.
According to Platts, some Chinese cities had stocked up steel inventories and are expected to use them later for repairs and reconstruction of infrastructure affected by heavy rains and floods.