Chinese steel futures are rallying, and it's dragging iron ore along for the ride

Scott Barbour / ALLSPORT

It’s been a good session for Chinese steel, iron ore and coking coal futures so far on Monday, reversing the all of the losses seen on Friday evening.

Here’s the scoreboard halfway through the session:

SHFE Rebar ¥3,496 , 2.70%
DCE Iron Ore ¥665.00 , 1.29%
DCE Coking Coal ¥1,313.50 , 1.08%
DCE Coke ¥1,840.00 , 2.19%

Aside from short-covering in some contracts after softening in recent weeks, the strength today is being put down to seasonal demand as Chinese construction activity picks up after a slowdown over winter.

“Seasonal steel demand is still continuing to recover after the cold weather,” an unnamed Shanghai-based trader told Reuters.

The May 2017 rebar contract traded on the Shanghai Futures Exchange is currently up 2.7% at 3,496 yuan, reversing a drop of as much as 1.5% earlier in the session.

As it has a tendency to do, the strength in steel futures has prompted buying in iron ore and coking coal contracts.

The May 2017 iron ore contract on the Dalian Commodities Exchange has added 1.29% to 665 yuan, rising from a more than one-month low of 638.5 earlier in the day.

Coking coal and coke futures are also pushing higher, adding 1.08% and 2.19% respectively.

The strength in Chinese futures may also explain strength in the Australian dollar on Monday.

The AUD/USD currently sits at .7565, up 0.33% for the session. Recent weakness in commodity prices was one factor that contributed to the AUD/USD sliding to as low at .7488 last week, the lowest level since January 17.

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