Iron ore futures rise on improved sentiment

China’s iron ore futures rose on Monday, supported by expectations of increased steel mill restocking ahead of China’s October National Day holiday, although concerns over steel demand remain.

Market insiders said optimism is building that Chinese steel mills will replenish depleted iron ore inventories ahead of the holiday. Expectations of improving steel demand also supported sentiment, while Beijing’s latest capital injection into state-owned financial institutions provided an additional boost to market confidence.

However, market participants remain cautiously optimistic, noting that recent steel price gains have been driven more by higher production costs than by a significant improvement in demand. Chinese steel traders said September demand is gradually improving, but most of the price support in the steel market continues to come from the cost side.

Beijing’s latest financial-sector support measures also provided some support to market sentiment. The government plans to inject 360 bln yuan (USD 53.6 bln) into three state-owned banks and five insurers to strengthen their capital positions and support lending and investment.

On the fundamentals side, high iron ore port inventories and lower steel production continue to limit the upside. According to the China Iron and Steel Association (CISA), average daily crude steel output among member mills fell 4 pct to 1.89 mln tons per day during August 21-31 from the previous ten-day period. Output was also 3.1 pct lower YoY.

On the Dalian Commodity Exchange, the most-traded iron ore contract rose 1.17 pct to 734.5 yuan (USD 109.3) per ton. Coking coal futures fell 2.57 pct to 1,627.5 yuan (USD 242) per ton, while coke futures declined 2.09 pct to 2,128 yuan (USD 317) per ton.

On the Shanghai Futures Exchange, HRC futures fell 0.41 pct to 3,366 yuan (USD 501) per ton, while rebar futures declined 0.22 pct to 3,153 yuan (USD 469) per ton. Wire rod futures rose 0.35 pct to 3,412 yuan (USD 508) per ton, while stainless steel futures increased 0.36 pct to 13,885 yuan (USD 2,066) per ton.

1 USD / 6.72 yuan