China’s iron ore futures rose nearly 4 percent on Tuesday to their highest in four months as investors reacted to moves by Beijing to tighten up on implementing steel production capacity cutbacks.
On Monday, the world’s biggest steel producer ordered mills in environmentally sensitive regions, including its steel hub Hebei, to phase out at least 1.25 tonnes of old capacity before building one tonnes of new capacity.
The most-traded iron ore futures on the Dalian Commodity Exchange closed 3.5 percent higher on Wednesday at 560.5 yuan ($86.19) a tonne, after touching a peak of 562.5 yuan a tonne, the highest level since Sept. 13.
Meanwhile, the most-active construction steel rebar futures on the Shanghai Futures Exchange rebounded from three days of losses and rose 1.3 percent to 3,819 yuan a tonne.
“Investors are holding positive expectation on iron ore, as they expect strong restocking demands at steel mills ahead of China’s Lunar New Year,” said Xu Bo, analyst at Haitong Futures.
The Chinese New Year holiday will kick in on Feb. 15.
Monday’s move by China came only a few days after Beijing vowed to continue to “unswervingly” cut existing steel capacity and “strictly” ban the launch of any new steelmaking facilities in 2018.
“Recent capacity control policies has shored up investors confidence over excessive steel capacity, helping to lift market prices,” said analysts at Orient Futures in a note.
Prices of steel raw materials rose alongside rebar on Tuesday, bolstered also by strong restocking demand from steel mills ahead of China’s new year holiday shutdown.
May deliver coking coal contract rose 1.7 percent to 1,384.5 yuan a tonne, while coke futures climbed 0.5 percent to 2,072 yuan a tonne.