LAUNCESTON, Australia, Jan 17 (Reuters) – The new year has started with something familiar from the last – a bubble in Chinese iron ore and steel prices.
The most-traded iron ore contract on the Dalian Commodity Exchange leapt by as much as 8 percent on Monday, in the process reaching a three-year high of 657.5 yuan ($95.29) a tonne.
Its gain so far this year is about 18 percent and the contract is around four times higher than the low reached in July 2015. It’s much the same story with Shanghai steel rebar, the benchmark construction grade, which gained 5.2 percent on Monday and is up about 16 percent since the start of the year.
The strong rallies so far this year appear to owe more to sentiment than actual demand and supply fundamentals, which raises the possibility of a repeat of last year’s medicine, tighter controls on commodity trading.
The main driver for steel’s surge is the Chinese government’s intention to keep closing excess capacity in polluting heavy industries, such as steel, iron ore and coal.
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