CHINESE commodity futures jumped to multi-month highs yesterday, extending a rally underpinned by expectations of further monetary policy easing to support growth and strong demand in some sectors.

    Steel-related futures were also buoyed by government-ordered output curbs in a key producing area, while Shanghai copper futures prices posted the biggest daily gain since September 2015.

    Soft Chinese inflation and G20 concerns that the global recovery remains grim are hardening views among some economists that more government stimulus will be needed to support China.

    “[Steel] demand is strong as there are even supply shortages of some specific specs in some cities, while the capacity utilization rate has been high with limited upside room,” said Xia Junyan, an investment manager of Hangzhou CIEC Trading Co. in Shanghai.

    “The strong fundamentals have attracted capital inflows. Funds are also bullish on steel futures as they expect easing monetary policy to support steel demand,” Xia added.

    The government of Tangshan, a big steel producing city in Hebei Province, has ordered curbs of industrial production for the rest of July to improve air quality, fuelling optimism that steel supply contractions will lift prices further.

    Steel mills are currently able to make profits of 200 yuan (US$30) to 500 yuan a ton, driving prices of raw materials like iron ore and coke, traders said.

    Baosteel said Tuesday it plans to cut 9.2 million tons of capacity through 2018, as the government pushes for supply-side reform to tackle overcapacity.

    Premier Li Keqiang said yesterday that the country was committed to market reforms and remained determined to tackle a steel capacity glut that has sharpened tensions between the two sides. (SD-Agencies)