China rebar contracts hit record high in seven and a half years

Chinese steel futures rose on Monday on the back of seasonal gains in demand, supporting steel prices, including iron ore, extending the record rally driven by concerns over supply cuts.

The most active steel rebar construction contract on the Shanghai Futures Exchange rose as much as 4.8 percent to 3755 yuan ($ 559) a tonne for the sixth straight session, then rose 4.1 percent to 3730 yuan. This was the highest closure in seven and a half years or since September 2011.

Hot rolled products used for automobiles and home appliances rose 3.1 percent to 3,944 yuan a tonne.

“Steel prices have also increased over the past few days, driven by seasonal improvements in demand,” said Richard Lu, senior analyst at CRU Group's Beijing office.

Steel demand in China tends to rise in late winter, with April generally being the peak month as industrial and other activity begins to recover due to rising temperatures.

According to Lu, demand has also risen as construction volumes have increased and purchases have also increased as China is about to deploy more infrastructure projects.

As demand for steel in China increased, production restrictions in the country's largest cities, Tangshan and Handan, were expanded, providing further support for steel prices.

Lu said CRU's analysis of government filings on expanding production restrictions showed that the restrictions in the second quarter, while "less stringent" compared to the introduction of the winter season, were "more stringent than the previous year."

Demand for steelmaking ingredients such as iron ore and coking coal has also increased with the resumption of production at steel mills to rebuild stocks and fulfill purchase orders.

The most traded iron ore contract for May 2019 on the Dalian Commodity Exchange soared 4.8 percent to 715 yuan a tonne, the highest for an Asian standard since 2013, when the futures contract was launched.