Steelmaking commodity coke surged to a six-week high in China on February 6, and steel and iron ore prices rose to their strongest in over a week, as investors defied a global financial selloff and raised their bets amid supply disruptions.
China's aggressive bid to tackle overcapacity, and its production curbs to fight smog, have helped tighten supply in the world's top steel producer. The efforts fuelled a nearly 50% surge in steel prices last year and a spike in profit margins to their strongest in decades.
Prices of steel and its raw materials have remained resilient this year, with winter output curbs in place until March. Transport disruptions due to China's heavy snow have also fuelled a rally in coking coal and coke futures.
"Fundamentally speaking, the steel market is really, really supported," said CRU analyst Richard Lu in Beijing. "Right now, even if there's some decrease in demand, the winter cuts help keep a relatively tight supply-demand balance."
China had ordered steel producers across 28 cities to cut output by up to half from November until March in a campaign against air pollution.
Coke and coking coal futures were February 6's outperformers. The most-traded coke contract on the Dalian Commodity Exchange rose as much as 3.1% to 2,140 yuan/t ($340/t), its loftiest since December 25, before closing up 2.1% at 2,119.50 yuan/t. Coke jumped 4.7% in February 5's rally.
Coking coal rose 0.9% to 1,359 yuan/t, adding to February 5's 4.2% surge.
Downstream users are operating with low inventory as there is no sufficient rail capacity to transfer coke and coking coal from producers, some of whom have halted output ahead of the week-long Spring Festival break that starts on February 15.
There were also concerns over disruptions of coking coal supply from major supplier Australia. Reports of heavy rain in Queensland have stoked fears of disruptions in the major coal basins in the (Australian) state.
(Writing by Jessie Jia Editing by Harry Huo)
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