Chinese spot steel prices edged up this week for the fifth time in a row as traders continued restocking amid rising prospects of firmer prices after an iron ore deal struck by Asian mills and Rio Tinto as the result of protracted talks.
Prices of China's benchmark hot-rolled coil rose 0.6 percent to 3,465 yuan ($507.5) a tonne, versus 3,443 yuan quoted last week, gaining around 10 percent from a 5-month low hit in late April, data from Metal Bulletin showed.
"Steel inventories held by traders now appear to have returned to normal levels and restocking activity is propping up prices," said a Chinese steel trader.
Macquarie estimated that trader inventory of six major steel products in China had fallen by some 30 percent from a peak in October and November.
"One thing to note is that traders' inventories are declining or stable, despite recent price rises. This is different from January/February this year, when traders' speculative restocking was the sole driver of prices," Macquarie analyst Christina Lee said.
Demand is also held up by expectations that an agreement between miner Rio Tinto and Asian steelmills to cut iron ore prices by a third, less than Asian customers' demand for a reduction of at least 40 percent, may stop further price slides in steel, traders and analysts said.
"We see some potential for Asian HRC (hot-rolled coil) spot prices to rise from recent lows of $400 towards $470 by July, but this will trigger some blast furnaces to be brought back online around the region," CLSA analyst Goeff Boyd said.
Japan's Nippon Steel, the world's No.2 steelmaker, will reverse some of its production cuts as early as July on expectations of a recovery in demand from carmakers and others, the Nikkei business daily reported on Thursday, a move that may check the upside of any price recovery.
China, which has demanded a bigger price cut, has yet to agree on the benchmark deal, which Japanese and South Korean mills decided to accept, and miners and analysts say China may also accept the deal to avoid being exposed to a volatile spot market.
"We've never heard of any steel mill in China which has said they wouldn't prefer a benchmark, as the spot price is dangerously volatile," Andrew Forrest, the chief executive of Fortescue, Australia's third-largest iron ore miner, said on Thursday.
On the Shanghai Futures Exchange, construction steel futures traded almost unchanged from last week, with September rebar futures SRBU9 quoted at 3,618 yuan and September wire rod SWRU9 quoted at 3,512 yuan.
In South Korea, traders, who have delayed purchases to deplete stocks, also increased buying, encouraged by recent price reductions by POSCO and its smaller rival Dongkuk Steel in recent weeks.
"End-users' steel inventory remains quite low and traders are preparing for their return to the market and building up stocks," said a trader.
Source: Reuters
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