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Shanghai steel gains as stockpiles drop, iron ore seen firm
August 5, 2013 / 4:28 AM / 4 years ago

Shanghai steel gains as stockpiles drop, iron ore seen firm

* Shanghai rebar hits more than one-week high
    * China steel inventories down from mid-March levels
    * Data points to resilient Chinese services sector

    By Manolo Serapio Jr
    MANILA, Aug 5 (Reuters) - Shanghai steel rebar futures
gained for a fourth session in a row on Monday as falling
inventories pointed to firm demand in top consumer China, which
should back appetite for raw material iron ore.
    The price increases in Chinese steel products have been
modest, but they have been largely sustained since July and
could stretch into August. These months were previously regarded
as a weak steel consumption period as construction activity in
China usually slows during summer.
    Inventory of steel products held by Chinese traders have
dropped to 14.2 million tonnes in late July from 20.6 million
tonnes in mid-March, based on data compiled by Bank of
America-Merrill Lynch.
    Stockpiles of rebar, a steel product used in construction,
fell to 6.3 million tonnes from 10.2 million tonnes over the
same period, the data showed.
    The most-traded rebar contract for January delivery 
was up 0.4 percent at 3,684 yuan ($600) a tonne by the midday
break, after touching a more than one-week high of 3,688 yuan.
    "August is usually not a good season for steel demand but
this year has been very different," said a Shanghai-based iron
ore trader.
    Data pointing to a resilient services sector in China also
supported sentiment. A private survey by HSBC released on Monday
showed activity in China's services sector continued to expand
in July. A similar government survey earlier showed the
non-manufacturing sector picked up last month as support
measures for small firms helped improve sentiment.
 
    The latest data on China's non-manufacturing sector
"provides evidence of the gradual rebalancing of the economy
away from manufacturing exports and infrastructure investment,"
Ric Spooner, chief market analyst at CMC Markets in Sydney, said
in a note.
    The firm steel market in China, which accounts for nearly
half the world's steel output, bodes well for iron ore, although
traders say buying interest may not be as strong as in recent
weeks.
    Benchmark 62-percent grade iron ore .IO62-CNI=SI gained
0.3 percent to $130.10 a tonne on Friday, according to data
provider Steel Index. 
    But the raw material still ended last week down nearly 2
percent, its steepest such fall since late May, after falling to
two-week lows during the period.
    "I think some mills who have restocked in the past two weeks
may take a break but there might be other mills who want to buy
some more material if they meet their target price," said the
Shanghai trader, who sees spot prices hovering around $130 this
week. 
    China's steel output is expected to rise 9 percent from a
year ago to a record high of about 780 million tonnes in 2013,
the country's economic watchdog said on Friday. 
 
  Shanghai rebar futures and iron ore indexes at 0356 GMT
                                                                                                                                
  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN4                   3684    +16.00        +0.44
  THE STEEL INDEX 62 PCT INDEX     130.1     +0.40        +0.31
  METAL BULLETIN INDEX            130.21     -0.22        -0.17
                                                                                                                                
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.1294 Chinese yuan)

 (Editing by Himani Sarkar)

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