Chinese steel prices climb after bank liquidity boost

China's steel futures climbed on Wednesday, marking their biggest daily gain in two weeks, as sentiment was boosted after the country's central bank said it would cut down the cash lenders hold as reserves. The People's Bank of China late on Tuesday unexpectedly said it would cut the reserve requirement ratio (RRR), the amount of cash that most commercial and foreign banks must hold as reserves to pay back medium-term lending facilities, by 100 basis points for most commercial banks.
"The cut in RRR helps to relieve pressure in capital markets and boost optimism over the macroeconomy," said Xu Bo, analyst at Haitong Futures. The most-active construction rebar futures on the Shanghai Futures Exchange closed 1.7 percent higher at 3,446 yuan ($548.37) a tonne on Wednesday, standing at their strongest one-day advance in two weeks.
Prices for steel-making raw materials also climbed. Iron ore contracts for September delivery jumped 2.1 percent to 449 yuan a tonne, slightly stepping back after reaching their biggest intraday gain since early January during early trade. The most-traded coke futures on the Dalian Commodity Exchange surged 4.8 percent to 1,851 yuan a tonne. Coking coal prices rose 3 percent to 1,149 yuan a tonne.
The pick-up in metal prices was also boosted by an increase of steel billet rates and active trading at physical market, easing fears over sluggish demand. Average billet prices rose 30 yuan to 3,490 yuan a tonne in top steel-making city Tangshan on Tuesday, with prices of some finished products in the city also seeing an increase, according to data from Mysteel consultancy. Some analysts and traders, however, warned that the market pick-up may be short-lived.
"Despite the RRR cut, downward pressure on the economy remains... and the slowdown in infrastructure investment is unchanged. That means curbs on long-term steel demand are still there," said Xu. CITIC futures said in a note in Mandarin that pressures hanging over iron ore and steel remain due to a slowing destocking process and environmental crackdown at steel mills.
Spot rebar prices edged up 0.03 percent to 4,111.8 yuan a tonne on Tuesday, according to Mysteel. Iron ore for delivery to Qingdao port rose 0.6 percent to $64.51 a tonne on Tuesday, according to Metal Bulletin.