Friday 7 September 2012

Shanghai rebar posts biggest daily gain on infrastructure push

Fri Sep 7, 2012
* China approves infrastructure projects worth $157 bln

* China daily steel output drops 3 pct late Aug-CISA

* Iron ore steadies, but still near 3-year low
By Manolo Serapio Jr
SINGAPORE, Sept 7 (Reuters) - Shanghai steel futures surged up by their 5 percent limit on Friday after state-run media said China has approved infrastructure projects to revive a slowing economy, raising hopes for a recovery in steel demand.

It was the biggest daily percentage gain for rebar on record, lifting investor sentiment in a market hammered by weaker steel demand in top consumer China that has dragged down iron ore prices to three-year lows.

China gave the go-ahead for 60 infrastructure projects this week which analysts estimate total more than 1 trillion yuan ($158 billion), or 2.1 percent of China's economy.

The most active rebar contract for January delivery on the Shanghai Futures Exchange closed at its upside limit of 3,406 yuan per tonne, up 5 percent from Thursday's settlement price.

"This is boosting investor sentiment in a market that has been waiting for so long for the government to do something to revive steel demand," said Helen Lau, senior commodities analyst at UOB-Kay Hian in Hong Kong.

But Lau said the sentiment lift may be temporary pending details on how these projects would be financed, with the central government unlikely to shoulder the funding burden.

China's continued curbs on the property sector may also limit the impact of the infrastructure projects, said Lau, noting that property construction accounts for 30 percent of China's steel demand versus 20 percent for infrastructure.

Despite the steep gain, Shanghai rebar dropped a marginal 0.3 percent for the week, stretching its losing streak to a fourth week after prices hit a series of record lows over the past three days.

Steel prices, down 18 percent this year, have been pressured by waning demand in China that has forced mills to curb output and trapped iron ore prices at near three-year lows.

The price of steel billet in Tangshan in China's top steel producing province of Hebei fell another 50 yuan to 2,690 yuan per tonne on Thursday, dropping by 200 yuan since Monday.

China's average daily crude steel output fell 3 percent to 1.872 million tonnes between Aug. 21-31 from the preceding 10 days, data from the China Iron and Steel Association showed on Thursday, as steel mills trimmed output amid slumping prices.

STILL CHALLENGED

Deals in the spot iron ore market pointed to more stable prices, although traders say it may be too early to determine whether a turnaround is on the way.

"We still haven't heard better deals but the price declines have slowed down and the market was more stable than yesterday with price offers the same as yesterday," said an iron ore trader in Shanghai.

Benchmark iron ore with 62 percent iron content .IO62-CNI=SI edged up 0.4 percent to $87 a tonne on Thursday, after falling to $86.70 on Wednesday, its lowest since October 2009, according to data provider Steel Index.

Miner Rio Tinto sold a cargo of Australian 61-percent grade Pilbara iron ore fines at $88.50 a tonne on Thursday, down slightly from $88.8 earlier in the week, traders said.

Brazil's Vale, the world's biggest iron ore miner, is selling around 150,000 tonnes of 63.8-percent grade iron ore fines at a tender closing later on Friday, traders said. Vale sold a similar cargo of 64.16-percent grade material at $91.5 a tonne earlier this week, they said.

"We believe that support for iron ore prices could continue for the next several days, however we see the fundamentals for iron ore as remaining quite challenged, with excess steel evident within China as domestic steel mills remain reluctant to cut production sufficiently to re-balance the market,"
Deutsche Bank said in a note.

"Weakness in iron ore could re-appear failing discipline in the Chinese steel market or some government stimulus action."
    
 Shanghai rebar futures and iron ore indexes at 0751 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3406   +135.00        +4.13
  PLATTS 62 PCT INDEX              88.50     -0.25        -0.28
  THE STEEL INDEX 62 PCT INDEX     87.00     +0.30        +0.35
  METAL BULLETIN INDEX             88.08     -0.35        -0.40

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
  ($1 = 6.3428 Chinese yuan)

(Editing by Miral Fahmy)

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