China ferrous metals scale contract highs on strong demand outlook

MANILA: Ferrous metals futures in China, the world's top steel producer, surged to contract highs on Friday, with this year's hottest commodity - iron ore - set for its seventh straight weekly gain on prospects about upbeat demand and worries over supply.

The most-traded iron ore for May delivery on China's Dalian Commodity Exchange rose as much as 4.3% to 1,054 yuan a tonne. Iron ore's most-active January contract on the Singapore Exchange climbed 1.6% to $159.50 a tonne.

Both the Dalian and Singapore benchmarks have risen more than 20% this month, with a Dec. 2 announcement by Brazilian miner Vale SA of reduced output targets for 2020 and 2021 coincided with intense demand from Chinese steel mills.

Signs of weakness in iron ore exports by top supplier Australia also emerged in recent weeks, adding upward pressure on prices.

"The risk of further (supply) disruptions is high, with a La Nina weather system likely to increase the number of hurricanes off Western Australia," said ANZ senior commodity strategist Daniel Hynes.

Spot iron ore in China traded at $158.50 a tonne on Thursday, SteelHome consultancy data showed, near an almost eight-year peak hit last week.

While steel production has turned seasonally slower in China as the weather turns colder, inventories of rebar and hot-rolled coil declined, analysts at Sinosteel Futures in Beijing said.

"Although the actual demand and the state of destocking are slower than before, the overall destocking (trend) is still maintained," they wrote in a note.

Steel futures prices remain supported by "strong (demand) expectations for next year", they said.

Construction steel rebar on the Shanghai Futures Exchange jumped 3.1%, hot-rolled coil advanced 2.8%, and stainless steel gained 1.2%. Dalian coking coal, the biggest gainer, rose 5.3% while coke added 3.7%.