SINGAPORE/SHANGHAI (BLOOMBERG) - Reinforcement bars are about as unglamorous an industrial product as one can get. Their rally in China this week is anything but, with a surge to the highest since 2014 that's helping to lift iron ore.
Rebar futures jumped for the fourth straight day on Shanghai Futures Exchange on Thursday (April 21), advancing as much as 6.3 per cent to 2,755 yuan (S$572) a metric ton. The product that's used to strengthen concrete is 19 per cent higher this week, and up 53 per cent in 2016. Iron ore futures in Dalian rose to the highest since March 2015 on Thursday after benchmark Metal Bulletin Ltd prices gained on Wednesday to the highest in 10 months.
"You've got a tight market, you've got momentum, and you've got this fundamental driver for steel in the government boosting the infrastructure and housing side of things," said Chris Weston, chief market strategist at IG Ltd. in Melbourne. "The rebar price is really leading the iron ore price at the moment."
The rallies in steel and iron ore in 2016 stand in sharp contrast to last year, when slowing economic growth in China hammered prices and too much supply chased too little demand. This year, policy makers in China have talked up growth and added stimulus, presiding over a revival in the property market. Steel demand in China may actually increase as much as 10 per cent this year, according to Credit Suisse Group AG.
"Firstly and perhaps of no surprise intuitively (but often overlooked in the market) rising steel and iron ore prices suggest demand is getting better," Credit Suisse said in a report on global steel markets dated April 20. "The magnitude of the iron ore and steel price hikes suggest that not only is demand improving but expectations should have moved very much into the inflationary camp for steel and iron ore."
Ore with 62 per cent content delivered to Qingdao climbed 3.1 per cent to US$64.77 a dry ton on Wednesday, according to Metal Bulletin. The price, which is set daily, has rebounded 69 per cent since bottoming in December, surprising many banks that had forecast further losses in 2016.