SINGAPORE: Shanghai rebar steel futures held near their highest level in around three months on Monday, reflecting expectations that demand in top consumer China may recover this month and the next as construction activity resumes.
Gains in Chinese steel prices should gradually revive mills' appetite for raw material iron ore, although physical trading remained thin, with several markets shut for Easter Monday, including top iron ore exporter Australia, Hong Kong and much of Europe.
The most-active October rebar contract on the Shanghai Futures Exchange rose as high as 4,402 yuan ($700) a tonne, a level not seen since Jan. 17, before closing little changed at 4,379 yuan.
"The increase in rebar futures is not surprising at this time because people expect demand to be higher in April and May when the construction sector becomes busier," said an iron ore trader in Shanghai.
"But whether this stronger demand will materialise is still a question."
Slower economic growth in China has triggered doubts on its raw material appetite this year, with iron ore's 2012 peak price of $147.70 down 23 percent from the highest level last year .
Shanghai commodities, led by copper, mostly tracked losses in equities, with the key Shanghai composite index falling nearly 1 percent, after data showed China's annual inflation rose a faster-than-expected 3.6 percent in March.
But most economists say the food-fueled increase may not dissuade Beijing from loosening monetary policy further to support the economy.
"The upshot is that inflation risks are by and large subdued at this juncture," Vishnu Varathan, a market economist at Mizuho Corporate Bank, said in a note.
"In the context of headwinds to growth taking centrestage, we think that today's inflation data will not materially affect scope for policy easing," he said.
There was little action in the spot iron ore market on Monday, with offers for imported iron ore in China unchanged from last week.
There are tenders for three Indian low-grade cargoes but some prospective bidders are hesitant to take up the shipments, comprising two cargoes of 57-percent grade iron ore fines and a cargo of 59-percent grade lumps.
"We don't have a strong incentive to take these cargoes. We'll try to bid but we won't be bidding aggressively," said another physical trader in Shanghai.
Stocks of imported iron ore at Chinese ports are $6-$7 per tonne cheaper than fresh shipments, he said, making it difficult for traders to sell any new shipments to mills.
Similar grade Indian cargoes were last both sold at around $130 a tonne, cost and freight, in March, the second trader said.
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