Benchmark Dalian and Singapore iron ore futures rose sharply in morning trade on March 2, rebounding from last week's slump as declining stockpiles at Chinese ports suggested a recovery in steel mills' appetite for the raw material.
Futures prices of other steelmaking raw materials as well as steel products in China also rose, shrugging off official and private surveys that showed factory activity in the world's second-largest economy contracted at the sharpest pace on record last month in the wake of a coronavirus outbreak.
The Dalian Commodity Exchange's most-traded iron ore contract, expiring in May, was up 5.4% at 650.50 yuan/t ($93.38/t) by the mid-day break, after rising to as high as 652 yuan/t. Futures on the Singapore Exchange advanced as much as 5.6%.
Factory operations and construction activities are gradually resuming in China, the world's top steel producer, after a prolonged Lunar New Year holiday, work stoppages and travel restrictions aimed at containing the virus epidemic.
Although Chinese steel mills face pressure from rising inventories and shrinking profit margins, prompting them to reduce output, some of them were seen resuming buying iron ore to rebuild stocks as transportation curbs have also eased.
"Business restarts are progressing, although still at a slow rate," said Richard Lu, a senior analyst at commodity consultant CRU, in Beijing.
But for Lu, it was still early to say that such gains in futures prices in China's ferrous complex could be sustained.
"The number of restarted business looks high, but actual production level remains far from normality for steel end-use sectors," he said.
With no meaningful pick-up in steel demand expected anytime soon, he said mills might be forced to further cut production.
While the recovery in steel demand remains slow, supplies of raw materials are rising faster, in contrast, he said. "This will accelerate price decreases going forward unless end-use demand recovers faster than expected."
(Writing by Emma Yang Editing by Jessie Jia)
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