Iron ore futures started the week on higher note due to strong Chinese steel demand and positive economic indicator.
The most-traded iron ore for January 2021 delivery on China’s Dalian Commodity Exchange rose by 2.61% or RMB 21.50 day-on-day to RMB 844 per tonne on Monday.
The steel rebar contract on the Shanghai Futures Exchange followed the rally and gained by 1.67% or RMB 62 day-on-day to RMB 3,779 per tonne.
China’s PMI remains in expansion mode
China’s manufacturing sector continued to recover from the coronavirus pandemic with positive reading of official manufacturing Purchasing Manager’s Index (PMI) at 51 readings for August.
According to the National Bureau of Statistics (NBS), the August PMI reading was slightly lower than 51.1 readings recorded in July. However, the reading did indicate that the manufacturing sector remained on expansion mode due to PMI readings above 50.
The positive PMI reading was based on government stimulus of infrastructure investments and high demand for medical supplies.
However, some market participants were waiting for the release of private PMI by Caixin and IHS Markit on Tuesday, which covered small and medium sized Chinese private firms.
China’s steel production to breach 1 billion mt mark for the first time
China’s largest steelmaker, Baosteel stated that the country’s steel production may breach the 1 billion mt mark for the first time in 2020.
This was due to the strong property and infrastructure sectors that contributed to firm steel demand in H2 2020, with governmental stimulus measures to promote ‘internal circulation’ or focus on domestic market over the 2021-2025 period or the country’s 14th Five-year plan.
Therefore, Baosteel expects China’s crude steel production to rise by 4% higher year-on-year in 2020 at 1.04 billion mt, by pinning hope on Q3 as the strongest quarter for flat steel market.