China's steel futures rose on March 5 on expectations that policymakers will take further actions, including cutting short-term interest rates, to support the domestic economy as the coronavirus outbreak has spread globally.
Construction steel rebar on the Shanghai Futures Exchange extended gains into a fourth session, climbing as much as 1.4% to 3,496 yuan/t ($503.96/t), its highest since February 24.
Hot-rolled coil, used in cars and home appliances, advanced 1.4%, while stainless steel edged up 0.6%.
Activity in China's manufacturing and construction sectors is picking up after being stalled by the epidemic, but steel demand has yet to fully recover, putting a strain on mills and traders who are sitting on huge stockpiles of steel products.
The steel industry, which accounts for more than half of the world's output, is pinning hopes on more policy stimulus, including a cut in local short-term interest rates, to drive a recovery.
"There may still be room for short-term interest rates to fall," analysts at Huatai Futures Co Ltd said in a note.
After a 50 basis point emergency rate cut by the Federal Reserve this week, the People's Bank of China is widely expected to further lower financing costs for businesses via cuts in the interest rate or the reserve requirement ratio.
"While we doubt rate cuts will make a meaningful boost to aggregative demand, they may help to mitigate some potential strains in the financial system and lift sentiment," economists at ING wrote in a note.
Beijing has already introduced policies to provide tax and financing support for businesses hit by the epidemic, but grim February factory activity data suggested the urgency of additional stimulus measures.
"The concern now is that the fear factor surrounding the outbreak will change corporate and consumer behaviour, prompting a wider demand shock," ING economists said.
(Writing by Emma Yang Editing by Jessie Jia)
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