Chinese steel futures resumed their record-setting rally on Thursday, after a five-day Labour Day holiday, over demand prospects and lifted prices of steelmaking ingredients including iron ore.
Asia’s iron ore benchmarks also rose after China “indefinitely” suspended all activity under a China-Australia Strategic Economic Dialogue, in the latest setback to the strained relations between Beijing and Canberra.
Australia is the world’s biggest iron ore supplier and covers about two-thirds of China’s import needs of the raw material.
China, the world’s top steel producer, has imposed a series of trade sanctions on Australian exports ranging from wine to coal.
Iron ore trade has so far been spared, but analysts believe China is looking at ways to reduce its reliance on Australian iron ore.
September iron ore on the Dalian Commodity Exchange surged 6.8% to 1,184 yuan ($182.77) a tonne by 0700 GMT. On the Singapore Exchange, June iron ore climbed 4.9% to $196.10 a tonne.
“China is unlikely to ban imports of Australian commodities which they rely heavily on as it will impact the domestic economy,” Wood Mackenzie senior economist Yanting Zhou said.
“The government is more likely to raise the administrative cost for importing commodities from Australia if they want to take action.”
Construction steel rebar on the Shanghai Futures Exchange SRBcv1 advanced as much as 4.7% to a record 5,672 yuan a tonne.
Hot-rolled coil, which is steel used in car bodies and home appliances, jumped as much as 4% to a record 5,957 yuan a tonne.
Indicating strong downstream demand, inventories of main steel products in China – rebar, wire rods, coils and plates – fell 5% last week from the prior week, while apparent consumption grew 5.3%, data from Mysteel consultancy showed.
Dalian coking coal leapt 8%, hitting the day’s upside limit, while coke rose 5.6%.
Shanghai stainless steel gained 4.3%.