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China commodities rally but steel, iron ore face worst month

Published 27/05/2016, 05:42 pm
© Reuters.  China commodities rally but steel, iron ore face worst month

* Rebar, iron ore futures recover from 12-week lows

* Tangshan orders mills to cut output to clear air

* Cotton advances amid supply shortage, egg also up

By Manolo Serapio Jr

MANILA, May 27 (Reuters) - Chinese commodities rallied broadly on Friday in a rare respite from a weeks-long reversal that has hit steel-linked materials particularly hard, with steel and iron ore futures still headed for their biggest monthly falls on record.

Analysts pinned the gains on short-term production curbs in China's biggest steelmaking city and an "oversold" market after a selloff that has left some commodities nursing losses of more than 20 percent in just five weeks.

Shanghai steel futures jumped nearly 5 percent and iron ore also bounced after China's top steelmaking city, Tangshan, ordered mills in and near the area to cut production for five days from Friday to ease air pollution. will tighten supply to the market at least in the short term, that's why we're seeing very strong prices," said Helen Lau, analyst at Argonaut Securities in Hong Kong.

Concerns over demand and strong action by Chinese authorities to curb speculative activity sparked a rout that began in late April and has nearly reversed an earlier price surge as retail investors bet on government efforts to spur growth.

"Prices have dropped significantly and very rapidly so it's quite reasonable to have some kind of upward adjustment,"

Richard Lu, analyst at CRU consultancy in Beijing, pointing to an "oversold market".

The most-traded rebar, or reinforcing bar used in construction, on the Shanghai Futures Exchange SRBcv1 rose 4.8 percent to close at 2,033 yuan ($310) a tonne. It touched 1,907 yuan on Thursday, the lowest since March 4.

Rebar has lost 24 percent so far in May, the most since it was launched in 2009. Shanghai hot-rolled coil SHHCcv1 climbed 6 percent, but was down 21 percent for the month.

Hebei province, where Tangshan is located, has pledged to shut 14.22 million tonnes of capacity in 2016 as part of the country's efforts to tackle a price-sapping glut, the official Xinhua news agency said on Thursday. Sachs said "too many blast furnaces" were restarted in response to a brief improvement in profitability. RALLIES

Iron ore on the Dalian Commodity Exchange DCIOcv1 rose 2.0 percent to end at 350 yuan a tonne, after touching 335 yuan earlier, its weakest since March 1. The contract was down 25 percent for the month so far, its biggest such decline since it was introduced in October 2013.

Shanghai rubber SNRcv1 added 1 percent, while Chinese base metals futures were higher across the board, helped by gains in steel.

Cotton, which has defied the downtrend in other commodities, rose as much as 4.2 percent to 13,260 yuan a tonne on the Zhengzhou Commodity Exchange CCFcv1 , its strongest since April 26.

A shortage in domestic cotton supply is behind the rally in cotton futures which also jumped 5 percent on Thursday, brokers say. Cotton is up nearly 4 percent for the month, having risen 23 percent in April.

"The market is already in tight supply and the government hasn't taken substantial measures to ease the shortage," said Yang Zhijiang, a broker with Merchant Futures in Shanghai.

The gains followed a spike in U.S. cotton futures CToi1 to a three-week high overnight on hopes that China may boost import quotas, helping U.S. and other top exporters.

Other gainers in China included egg DJDcv1 which rose 2.9 percent and corn DCCcv1 which increased 1.6 percent.

($1 = 6.5583 Chinese yuan)

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