Shanghai steel rebar futures rose to their highest level since late May on Wednesday, propped up by expectations that traders would replenish stocks on hopes demand will pick up as the Chinese economy regains momentum.
Iron ore futures in Dalian also scaled higher after losses on Tuesday although ample supplies of the steelmaking raw material could keep gains in check. Top iron ore exporter Australia slashed its price forecast for 2015 as supply grows faster than demand in China, the world's top user of the commodity.
The most-traded rebar contract for delivery in October on the Shanghai Futures Exchange closed up 0.7 percent at 3,079 yuan ($500) a tonne. It touched 3,086 yuan earlier, its highest since May 30.
Stocks of steel products held by Chinese traders stood at 13.53 million tonnes as of June 20, the lowest for that period since 2009, said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.
"I think we're close to the end of destocking. If the inventory falls to 10-11 million tonnes, we might see traders start to replenish and by then we should see a more sustainablerebound in steel prices," she said.
Traders may begin restocking by the end of August, said Lau, following a lull in demand during the summer.
Signs that China's economy is picking up steam may boost demand for steel. The country's manufacturing activity expanded in June for the first time in six months, according to a survey by HSBC released on Monday.
Iron ore for September delivery on the Dalian Commodity Exchange climbed 1.3 percent to end at 693 yuan a tonne, having risen as much as 1.8 percent earlier in the session.
Iron ore with 62-percent iron content for immediate delivery to China's Tianjin port .IO62-CNI=SI eased 0.1 percent to $93.30 a tonne on Tuesday, after a five-day climb, according to data compiler Steel Index.
"Traders holding imported material at Chinese portsattempted to lift their offers but saw little traction," SteelIndex said.
AUSTRALIA CUTS FORECAST
High stocks of iron ore at China's ports and among its steel mills will continue to weigh on prices, said UOB-Kay Hian's Lau. Inventory of iron ore among Chinese mills stood at 32 days of use as of June 20, she said. "Iron ore prices will continue to be under pressure until the inventory level at mills falls to 20-25 days."
Stocks of imported iron ore at Chinese ports reached a record high of 113.65 million tonnes SH-TOT-IRONINV at the end of last week, according to Steelhome which tracks the data. The port inventory has increased more than 31 percent this year.
Spot iron ore prices have recovered from a 21-month low of $89 reached last week, but have struggled to sustain a rally, staying below $100 since May 19.
Australia cut its average iron ore price forecast to $94.60 a tonne in 2015 from a previous estimate of $100.80.
"Although steel production in China is forecast to increase in 2015, increasing competition among iron ore exporters to sell their additional production is expected to intensify and push prices lower," Australian forecaster Bureau of Resource and Energy Economics said in its latest quarterly update.
Iron ore futures in Singapore tracked gains in Dalian. The July contract on the Singapore Exchange advanced 0.8 percent to $94.83 per tonne.
Source: Reuters
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