Spot iron ore prices were headed for a fourth consecutive weekly increase as firm demand for high grade cargoes lifted it to the highest level since May although ample supplies were likely to limit further gains.
Iron ore, China’s top commodity import by volume, has recovered nearly 9%since touching a 21 month trough of USD 89 per tonne in June on increased supply of the raw material to China.
Australian miner Fortescue Metals Group said that it expects the market to rebalance in the short term as higher cost producers, including those in China, leave the market, stabilising the price.
An iron ore trader in Shanghai said that there’s still a lot of supply but demand for high grade material is relatively bigger than low grade.
A 60,000 tonne cargo of 62% high grade Australian iron ore fines was sold at USD 97 per tonne via the globalORE platform on Friday, up from USD 96.50 on Thursday.
According to data compiled by Steel Index, the benchmark 62%grade iron ore for immediate delivery to China .IO62-CNI=SI rose 0.3% to USD 96.90 per tonne on Thursday. That was its highest level since May 27.
Iron ore is up marginally for the week so far, which would be its fourth straight weekly gain. The price also rose for four straight weeks between March and April before rising supply dragged it lower for the following seven weeks, breaching USD 100 per tonne in May for the first time since September 2012.
Prices recovered from mid-June as traders began taking positions on hopes that the market has bottomed out and Chinese steel mills replenished stockpiles.
Trader said that “I think USD 100 is a bit difficult to achieve this month because of the oversupply and I don’t think there will be increased demand for steel during summer time.”
Analysts said that China’s Baoshan Iron and Steel (Baosteel) will keep prices of its major products unchanged for a second straight month in August. Unless Chinese steel mills lift purchases of iron ore cargoes, any further price increases may be capped.
Australia and New Zealand Bank analysts said that steel mill stocks generally average one month of consumption and recent conditions indicate that mills are in no hurry to buy more. Any price gains over the next week are unlikely to be sustained as mills try to protect fragile profit margins.
Source – Reuters