Iron ore climbed to its highest level in almost seven weeks, moving closer to $100 a tonne, as firmer steel prices in top market China spurred buying interest in the raw material.
China’s bid to push infrastructure spending to boost its economy has lifted steel futures in Shanghai to their highest since late May. That has helped increase purchases of spot iron ore cargoes, raising chances that prices will bounce back to $100 per tonne after falling nearly 30 percent this year.
Iron ore has risen 10 percent since dropping to a 21-month low of $89 in mid-June, so far the trough this year for prices that dropped below the $100 support level in May.
Benchmark 62-percent grade iron ore for immediate delivery to China <.IO62-CNI=SI> rose 1 percent to $97.90 a tonne on Monday, the highest since May 27, based on data compiled by Steel Index.
“There’s a chance that the momentum can be sustained because steel prices are moving up. Definitely the government is going to help infrastructure spending and that should lend more support to steel prices, and also iron ore,” said a trader in Shanghai.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange hit a session high of 3,153 yuan ($510) a tonne on Tuesday, near Monday’s peak of 3,154 yuan which was the highest since May 28.
Chinese Premier Li Keqiang said earlier this month that the government will step up efforts to build more infrastructure projects, including railway and energy ones, in poorer regions.
Beijing will release its gross domestic product data on Wednesday that is forecast to show that China’s economy grew 7.4 percent in the second quarter, the same pace as in January-March which was the slowest clip in six quarters, according to a Reuters poll of economists. [ID:nL4N0PI1SG]
But a recovery in iron ore to above $100 a tonne can spur higher cost and smaller suppliers back to the market after being shut out when prices fell, traders said.
“If the price goes beyond $100 there’s going to be a lot more cargo coming into the market. When you have too much cargo coming back online then that’s going to again put pressure on prices,” said another Shanghai-based trader.
The China Iron and Steel Association cautioned steel producers from restocking aggressively as prices recover.
“If the delivery schedule of the big mining companies doesn’t change in the third quarter, then prices are likely to fall further, and (steel) companies should fully consider the supply situation and rationally arrange their inventory levels,” CISA said in a note on Monday.
Stockpiles of imported iron ore at Chinese ports stood at 113.4 million tonnes on Friday, not far below a record high of 113.7 million tonnes reached the previous week, based on data from industry consultancy SteelHome which tracks inventory at 44 Chinese ports.
Prices at 0424 GMT
Contract Last Change Pct Change
SHFE REBAR JAN5 3146 +3.00 +0.10
DALIAN IRON ORE DCE DCIO SEP4 717 +2.00 +0.28
SGX IRON ORE FUTURES AUG 98.44 -0.10 -0.10
THE STEEL INDEX 62 PCT INDEX 97.9 +1.00 +1.03
METAL BULLETIN INDEX 97.67 +0.75 +0.77
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.2086 Chinese yuan)