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China hot-rolled coils strike new high, analysts warn of risks

Futures for Chinese hot-rolled coils hit a record high at 6,698 yuan ($1,040.03) a tonne on Wednesday, while other ferrous products also extended gains, causing analysts to alert market to risks amid the sky-rocketing prices.

The most-traded October contract of hot rolled coils on the Shanghai Futures Exchange surged as much as 3.8% to an all-time high during the morning session. It was up 2.4% at 6,611 yuan a tonne as of 0330 GMT.

Construction steel rebar on the Shanghai bourse inched 0.9% higher to 6,094 yuan per tonne.

The stainless steel futures for June delivery jumped 2.1% to 15,560 yuan a tonne.

“Although it’s still a bull market, the rapid price surge in short-term has accumulated risks and there’s possibility for adjustment,” analysts with SinoSteel Futures wrote in a note.

Despite a red-hot market for steel products in the past few months, China’s southern area is about to enter a rainy season that could potentially dampen demand for construction materials.

Meanwhile, the country’s top steel auto sheet producer Baoshan Iron & Steel said in a call on Tuesday that automobile demand in the second quarter is hurt by chip shortage, while the third quarter is traditional off season, according to a Citi Research note.

Prices for steelmaking ingredient also gained.

Benchmark iron ore futures on the Dalian Commodity Exchange increased 0.4% to 1,306 yuan a tonne.

“The forward contract gained significantly stimulated by intensified China and Australia relations,” according to SinoSteel, adding that the possibility of limiting iron ore imports from Australia is very small, but sentiment could impact in the short run.

Analysts with Huatai Futures also reminded investors to control positions on increasing risks due to high iron ore prices.

Dalian coking coal and coke futures rose 4.3% to 1,020 yuan and 0.8% to 2,872 yuan, respectively. ($1 = 6.4402 Chinese yuan renminbi) Source: Reuters (Reporting by Min Zhang and Shivani Singh; Editing by Vinay Dwivedi)

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