Benchmark Shanghai steel futures rose on the first trading day of 2020 on Thursday after a fresh move by China's central bank to shore up the slowing domestic economy spurred hopes of increased demand for construction and manufacturing material.
The People's Bank of China said on Wednesday it was cutting the amount of cash that all banks must hold as reserves, freeing up more funds for banks to lend as economic growth slows to the weakest pace in nearly 30 years.
The Shanghai Futures Exchange's most-traded construction steel rebar contract, with May expiry, climbed as much as 1.0% to 3,593 yuan a tonne, its highest since July 17 last year.
That added to a full-year 2019 gain of 34% for the benchmark, which rose for four straight years since trading began in 2015.
The most-active hot-rolled steel coil contract, also expiring in May, jumped 0.8% to 3,620 yuan a tonne, its strongest since July 1 last year. The benchmark also gained 34% in 2019.
"It's sentiment-driven. With the government announcing more measures to support the economy, people don't expect demand (for steel) to be really very weak this year," said Richard Lu, senior analyst at commodities intelligence firm CRU in Beijing.
The cut in banks' reserve requirement ratio "signals Beijing's heightened concerns on economic growth headwinds, credit contraction pressure in some regions, and an upcoming liquidity shortage ahead and during the Lunar New Year holidays," analysts at Nomura said in a note.
The anti-smog orange alert issued by the nation's top steelmaking city of Tangshan should also support steel prices, but any gains may be tempered, particularly for rebar, because construction activities are usually suspended over winter in China, Lu said.
Tangshan, in the country's northern province of Hebei, issued the orange alert on Thursday, the second-highest after red in Hebei's three-tier pollution warning system.
It requires companies to take action to cut emissions, including restricting output. Despite Tangshan's fresh smog alert, iron ore and other steelmaking raw materials also rose, extending gains due to steel mills' restocking demand.
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