Iron ore futures continued to rally for the second consecutive days on good economic indicators and robust steel demand.
The most-traded iron ore for January 2021 delivery on China’s Dalian Commodity Exchange rose slightly by 0.24% or RMB 2 day-on-day to RMB 846.50 per tonne on Tuesday.
The steel rebar contract on the Shanghai Futures Exchange followed the rally and hiked up slightly by 0.32% or RMB 12 day-on-day to RMB 3,774 per tonne.
Fastest China’s PMI growth in nine years
The market rally was supported by fastest expansion of private manufacturing activities indicated by Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) at 53.1 for August, higher than July’s reading of 52.8.
The August PMI also beat market expectation of 52.7 and was the fastest since January 2011, based on Caixin/Markit data.
So far, the PMI uptick reflected quick recovery from China’s private manufacturing sector, mainly small-to-medium enterprises from the coronavirus pandemic.
The private PMI was in line with the official PMI which covered more of the state-owned enterprises with the reading of 51 for August 2020, further confirming the Chinese manufacturing sector is in expansionary mode.
Better steel demand and prices for September
Moreover, the Chinese steel demand still had more room for growth in September despite the high raw material cost.
According to Mysteel, the steel prices had been on the uptrend for four consecutive months and this momentum will not cease in September, due to more construction activities ahead.
As it was estimated that the country’s reconstruction works after the heavy rainy season will require around 1 million mt of steel, while the newly launched projects may consume another 1.5 million mt of steel products.
Besides, the daily crude steel production continued to rise in August at the average of 2.99 million per day, up 1.9% on-month and up 7% on yearly basis. This trend may continue well into the months of September and October which are the typical peak steel demand season.