Reuters reported that Shanghai steel futures rose 5%, their biggest percentage gain on record, and spot iron ore posted its biggest gain in 10 months on Friday after China approved infrastructure projects to revive its economy, raising prospects of higher steel demand.

The most active rebar (reinforced bar) contract for January delivery on the Shanghai Futures Exchange moved up by 5%, its daily upside limit, to CNY 3,406 per tonne.

Benchmark iron ore with 62 percent iron content .IO62-CNI=SI rose 2.3 percent to USD 89 a tonne, after falling to USD 86.70 on Wednesday, its lowest since October 2009, according to data provider Steel Index.

China gave the go ahead for 60 infrastructure projects this week which analysts estimate total more than CNY 1 trillion (USD 158 billion), or 2.1 percent of China's economy. The news lifted investor sentiment in a market hammered by weakening steel demand in top consumer China that has dragged down iron ore prices to three-year lows.

Ms Helen Lau, senior commodities analyst at UOB-Kay Hian in Hong Kong, said “This is boosting investor sentiment in a market that has been waiting for so long for the government to do something to revive steel demand. But the sentiment lift may be temporary pending details on how these projects would be financed, with the central government unlikely to shoulder the funding burden.”

Steel traders in Europe said it will take months for China to implement these infrastructure projects and they are unlikley to lift physical steel prices until next year, as the industry is still massively oversupplied.

Source - Reuters

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