Dalian iron ore futures were set to gain for a fifth month, rising on Friday as China’s accelerating factory activity boosted sentiment already up on signals of more government support to keep economic recovery on track.
The Dalian Commodity Exchange’s most-traded iron ore contract rose 0.5% to 843 yuan ($120.71) a tonne in morning trade, advancing for a fourth straight session and on track for a fourth weekly gain in a row.
The commodity has defied expectations for weak steel demand in July, receding supply risks and rising Chinese port stockpiles, with the Dalian futures set to gain for a fifth straight month while spot prices remain above $100 a tonne for two months now.
Steel futures’ monthly winning streaks also remained unbroken, reflecting optimism about further stimulus measures to sustain China’s post-lockdown economic recovery that is driving steel mills to produce more.
“At present, steel mills are still profitable... and companies have no incentive to reduce production,” analysts at Sinosteel Futures Co Ltd wrote in a note. “The market’s demand expectation... has further strengthened.”
Factory activity in the world’s top metals consumer expanded at a faster rate in July, beating analyst expectations despite disruptions from floods and a resurgence in global coronavirus cases.
Some analysts, however, are sounding a cautionary note.
“We caution that the negative effects from the ongoing Yangtze River floods that may constrain some outdoor construction activity have not been fully felt,” those at Nomura said in a note.