September 26, 2019 / 7:46 AM / 3 months ago

UPDATE 1-Iron ore futures rise despite pre-holiday lull in physical market

* Dalian iron ore benchmark jumps as much as 2.7%

* Shanghai stainless steel rises as much as 2.4%

* Physical market “very quiet” ahead of China holiday

* China’s steel sector faces illegal new capacity risks (Updates with closing prices)

By Enrico Dela Cruz

MANILA, Sept 26 (Reuters) - Iron ore futures climbed more than 2% on Thursday, despite little trading in the physical market ahead of the country’s National Day celebrations, as hints of progress in the U.S.-China trade deal negotiations lifted investor sentiment.

The most-traded January 2020 iron ore on the Dalian Commodity Exchange ended up 2.2% at 637 yuan ($89.39) a tonne, after rising up to 3% earlier in the session.

U.S. President Donald Trump said on Wednesday a deal to end a nearly 15-month trade war with China could happen sooner than people think.

Although doubts remain on whether the world’s two biggest economies could reach a deal soon, China said on Thursday it is in close communication with the United States and is preparing to make progress at trade talks in October.

“The rebound in the futures markets is just sentiment-driven,” a Shanghai-based trader said. “It’s very quiet now in the physical market because of the upcoming holiday.”

Cities surrounding Beijing have imposed routine output curbs on steel mills, coking coal producers and other industries to improve air quality as the nation prepares to celebrate the 70th anniversary of the founding of the People’s Republic on Oct. 1.

Iron ore demand has slowed as many steel mills are winding down amid tighter production restrictions ahead of the celebrations, the trader said, adding that many traders and mill executives were also away to attend an industry conference in Qingdao.

The recovery in demand for iron ore and coke, another key steelmaking ingredient, in China will likely depend on how long the stricter production curbs will be enforced, the trader said.

China’s environment ministry has warned that “unfavourable” weather conditions would lead to a prolonged and widespread outbreak of smog stretching along the eastern coast for around two weeks.

The heavy industrial city of Xuzhou in Jiangsu province, home to more than a dozen steel firms, is also now covered by the restrictions, with local factories ordered shut on Thursday.

FUNDAMENTALS

* Mirroring the lack of physical trade, prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China SH-CCN-IRNOR62 have been steady at $93 a tonne this week.

* On the Singapore Exchange, the front-month October iron ore contract was up 2.3% at $88.89 a tonne in afternoon trade.

* Brazil’s Vale SA will start supplying a new high-grade iron ore product, GF88, in the first quarter of 2020.

* Dalian coke ended down 0.1% at 1,887.50 yuan, giving back earlier gains, while coking coal gained 0.5% to 1,253 yuan.

* The front-month February 2020 stainless steel contract on the Shanghai Futures Exchange edged up 1.0% to 15,705 yuan a tonne, after a lacklustre market debut on Wednesday.

* Shanghai construction steel rebar, however, fell 1.4% to 3,445 yuan a tonne. Hot-rolled steel coil dropped 1.7% to 3,460 yuan.

* Top steel producer China is facing increasing illegal new capacity risks, a Ministry of Industry and Information Technology official said.

$1 = 7.1264 yuan Reporting by Enrico dela Cruz; editing by Christian Schmollinger and Subhranshu Sahu

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