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Commodities

Asian commodities stocks soar amid Chinese steel rally

HONG KONG -- China's steel market is beginning to break out of a long slump, bolstering related shares around Asia, as Beijing plans to tackle the supply glut that has weighed on prices as well as shore up a faltering economy.

     Even as the benchmark Hang Seng index slumped more than 250 points Tuesday, steel-related stocks here bucked the trend. China Vanadium Titano-Magnetite Mining and coking coal producer Mongolian Mining both rose more than 14%, while Mongolia Energy soared 16.6%. Brazilian resource giant Vale's Hong Kong depositary receipts jumped as high as 7.3%, and Anglo-Swiss commodities trader Glencore's shares climbed 2.6%.

     All of these have doubled or tripled from lows reached late last year or early this year, picking up steam this month. Glencore's performance is hardly that of a company that had until only recently faced doubts about its finances.

     The supply-demand balance in China, the epicenter of the glut, is starting to improve. Steel product prices have rebounded sharply in the nation's top steel-producing area of Tangshan, Hebei Province, the South China Morning Post reported in its Tuesday edition. The pre-markup price of steel billets reached 2,060 yuan ($316) a ton Monday, climbing 16% in three days, data from an industry website shows. The rise spread rapidly to such major cities as Shanghai and Shenzhen, according to the newspaper.

     The shift stems from a clear message from the National People's Congress that kicked off over the weekend that the Chinese government will support the economy through fiscal spending and monetary easing. Speculators and others are scrambling to stock up, expecting demand to pick up again, according to the South China Morning Post.

     "Market sentiment is completely different from a few months earlier, and everyone is now expecting the prices to go up further," said a sales manager at a steel trader quoted by the newspaper.

     Another factor is Beijing's plans for robust supply-side reform to alleviate overcapacity in the steel and coal industries. With such Shanghai-listed steel stocks as Baoshan Iron & Steel bought up ahead of time on reform expectations, their performance was mixed Tuesday, though still relatively strong.

     Related stocks in neighboring countries are starting to reflect this improvement. Indian iron ore mining company Vedanta advanced 3.3%, and Tata Steel 1.1%, on Tuesday. Steel stocks in Tokyo have not benefited much so far but could later on.

     Higher prices for iron ore and steel rebar in China stem from expectations of a recovery in real estate investment, said Hong Hao of mainland Chinese brokerage Bocom International Securities. China's housing market is often seen as awash in supply, with construction at a standstill. But sales are brisk and prices rising steadily in such big cities as Shenzhen, Shanghai and Beijing.

     Such major cities account for around one-third to four-tenths of Chinese real estate investment, according to Hong. And the government has taken steps recently to support homebuyers. Broader perception of shrinking housing stocks and increasing investment could spur a steel rebound.

     The rise in prices is still speculative, Hong pointed out. Whether the traders now buying up steel will find customers to take it off their hands remains to be seen. China's economic management will be key.

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