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UPDATE 1-China steel, iron ore extend gains to 6th day on data, capacity cuts

Published 08/12/2016, 06:56 pm
Updated 08/12/2016, 07:10 pm
© Reuters.  UPDATE 1-China steel, iron ore extend gains to 6th day on data, capacity cuts

* China exports, imports rise unexpectedly

* China also clamping down on low-quality steel producers

* Dalian iron ore rises to strongest since January 2014

* Spot iron ore hits over two-year high on Wednesday (Adds China trade data, HSBC comment, updates prices)

By Manolo Serapio Jr

MANILA, Dec 8 (Reuters) - Chinese steel and iron ore futures rose for a sixth straight session on Thursday, spurred by upbeat trade data and worries over tighter supply with Beijing intensifying efforts to cut excess steel capacity.

China's imports grew at the fastest pace in more than two years in November, fuelled by a strong thirst for commodities from coal to iron ore, while exports also unexpectedly rose, reflecting a pick-up in both domestic and global demand. spike in commodity imports signalled "accelerating industrial and construction activity," HSBC economist Jing Li wrote in a report.

"In the next few months, low base effect, demand stabilization and price recovery will give import growth a nice lift," said Li.

The most-traded rebar on the Shanghai Futures Exchange SRBcv1 closed up 1.7 percent at 3,394 yuan ($493) a tonne. The construction steel product touched a 31-month high of 3,428 yuan on Wednesday.

Along with inspections of steel mills in a fight against pollution, China is also targeting producers of low-quality rebar, which together have a combined capacity of 100 million-125 million tonnes a year, Morgan Stanley (NYSE:MS) said in a note, citing Chinese agencies Mysteel and Xiben Newline.

Output from these producers don't appear to be included in China's official data "so the removal of this capacity could have a material impact on supply and pricing," Morgan Stanley said.

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"We see this as positive for large producers that can benefit from market share increase."

On the Dalian Commodity Exchange, raw material iron ore DCIOcv1 closed 1.1 percent higher at 635 yuan a tonne, after hitting 653.50 yuan earlier, its loftiest since January 2014.

"Stronger steel prices tend to lead iron ore prices higher as incentives to expand output increase. But that really only works when the lift in steel prices is demand-led," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

"With the lift in steel prices linked more with future supply cuts, the more prevalent risk is that iron ore demand will fall. This risk should eventually drive iron ore prices lower."

Still, the rally in futures pushed spot iron ore back above $80 a tonne on Wednesday as physical cargoes, mainly from top suppliers Australia and Brazil, were sold higher this week.

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB climbed 3.2 percent to $82.25 a tonne, its strongest since October 2014, according to Metal Bulletin.

China imported 91.98 million tonnes of iron ore in November, up 13.8 percent from the previous month and one of the highest monthly volumes on record, customs data showed. = 6.8802 Chinese yuan)

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