Is China about to embark on a fresh bout of stimulus? Some people in the metals market seem to think so.

Prices of benchmark 62% iron ore in Singapore have been booming, jumping 5.3% on Monday and closing Wednesday more than 21% up on their level a month earlier. There seems to be real activity behind that movement: Rolling three-month imports in October hit their fastest pace of annual growth in almost two years.

While the main Chinese iron ore benchmark in Dalian had climbed a more modest 10% on the month through Wednesday, local steel prices have been jumping too, suggesting there’s genuine demand out there.

That wouldn’t be wholly surprising. Whenever China’s economy has slowed significantly in recent years, the government has encouraged state banks to step in with a dollop of industrial stimulus to keep the party going. A Politburo statement last week promising to keep growth in a reasonable range may have been taken as evidence that a fresh dose was being cooked up.

If anything, the rally in mainland steel prices might suggest an even more bullish interpretation. Prices for hot-rolled coil, which has mostly been sold at a discount to steel reinforcement bar over the past year, leaped to a 212 yuan-per-ton ($30.15/ton) premium in Shanghai on Thursday.

That should be heartening news. Hot-rolled coil is about 100 yuan a ton costlier to produce than rebar, so in theory ought always to trade at a comparable premium. When priced at a discount, it’s an indicator that most of the demand in China is being driven by the construction sector in which rebar is used, rather than by manufacturers, who prefer coil. That, in turn, is a sign of an economy that’s being supported by government infrastructure and real estate spending, rather than private-sector demand for automobiles, machinery, and consumer goods. When coil flips to a premium, it might be a sign that the economy is finally getting its vigor back.

The trouble with this theory is that there’s precious little sign of a boom in the industrial sector. Fixed-asset investment in manufacturing in the year through October grew just 2.6% from a year earlier, with car production in outright contraction. The most vigorous investment growth has been in the mining sector, which if anything should be a problem for commodities prices since it suggests supply will be rising soon.

A better theory of what’s going on comes from looking at warehouses. Steel inventories tend to plummet toward the end of the calendar year as manufacturing goes into hibernation ahead of Lunar New Year, but the market looks particularly tight this time. Mill inventories of hot-rolled coil shrank at the end of November to their lowest level since early 2016, with just 765,900 tons stashed away, according to data from MySteel Singapore Pte. The 6,810 tons of inventory at mills and consumers in the port city of Tianjin last week was the lowest level on record for that location.

What appears to be happening is that the shaky economic outlook in China in recent months has left production short even of the limited levels needed to tide the industrial sector through the slow winter months. Mills are seeking to top up their supplies in case they run short, and are rushing to secure iron ore inventory. This rally should be little more than a blip.

To contact the author of this story: David Fickling at dfickling@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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