China's stainless steel futures jumped to their highest in three weeks on Wednesday, extending a rally fuelled by brisk demand coupled with low inventory and a surge in prices of raw material nickel.
The most-traded stainless steel contract with March expiry on the Shanghai Futures Exchange rose as much as 2.6% to 14,165 yuan ($2,192.79) a tonne, the strongest since mid-December.
"The current spot market is tight, and downstream demand has been doing well while export orders are good. The price of ferronickel at the raw material end has remained high," analysts at Huatai Futures said in a note.
Nickel prices surged to two-week highs on Monday as concerns over supplies surfaced after an earthquake in major supplier Indonesia.
The earthquake shook the island of Sulawesi, causing minor damage to buildings in Indonesia Morowali Industrial Park, where China's Tsingshan Holding Group produces nickel pig iron, though operations were generally unaffected and production continues.
Chinese stainless steel producers mainly use nickel pig iron, a low-grade ferronickel and cheaper alternative to pure nickel, as feedstock.
