SINGAPORE, Dec 14: Spot iron ore prices hit their highest in almost five months as traders snapped up cargoes, betting Chinese demand will stay firm and supply may be limited in the first quarter due to seasonal weather disruptions in exporters Australia and Brazil.
Rising steel prices also aided the iron ore rally, with Shanghai rebar futures climbing on Friday to levels last seen in August after data showed China’s factory activity picked up pace in December.
The HSBC flash manufacturing index for China rose to 50.9, a 14-month high and the fifth straight monthly gain, driven by domestic demand.
The most active rebar contract for May delivery on the Shanghai Futures Exchange peaked at 3,749 yuan ($600) per tonne in morning deals, its highest since Aug. 13. It was up 1.4 percent at 3,735 yuan by the midday break, on track for a second weekly gain.
Sellers in China upped price offers for imported iron ore cargoes by $2-$3 per tonne on Friday, a day after the benchmark 62-percent grade <.IO62-CNI=SI> rose 1.1 percent to $126.40, based on data from Steel Index.
It was the highest for the benchmark since July 18 and Thursday marked its eighth consecutive day of gains, the longest winning streak since June when it rose for 10 straight days.
‘It looks like there is more room for prices to rise. Port stocks in China are running low and traders are replenishing and taking positions,’ said a trader based in Singapore, who sees iron ore climbing further to $130-$135.
Iron ore stored at main Chinese ports stood at 77.8 million tonnes last week, the lowest since January 2011, according to consultancy Mysteel.
Most steel mills have been buying iron ore for immediate need from the ports because prices for fresh cargoes were rising ‘very fast’, the trader said.
But that caused port inventories to drop steeply, forcing traders to restock.
‘Traders are positioning because they’re expecting Q1 to be positive for steel consumption as construction in China resumes when the weather turns warmer. The seasonal cyclone and rains in Australia and Brazil will also put pressure on cargo availability,’ the trader said.
Steel stocks held by Chinese traders are also falling, with inventories in some cities estimated to have been halved, which should support a stronger steel price recovery than usual at the start of 2013.
Low inventory, a moderate production increase in steel last month and robust Chinese exports have largely reduced oversupply risks, said Helen Lau, senior mining analyst at UOB-Kay Hian in Hong Kong.
‘Demand is on the mend due to mild economic recovery, with demand from automakers especially resilient,’ she said. (agencies)
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