SINGAPORE, Feb 15: Iron ore prices are likely to scale higher when top buyer China returns next week, backed by hopes Chinese steel demand will pick up pace, after a Lunar New Year break that has sapped activity in both physical and derivatives markets.
Iron ore swaps mostly rose in limited volumes this week as investors bet on spot prices closing in on 15-month highs of almost $160 per tonne reached in January as construction projects resume and factories reopen in China.
The March swap contract cleared by the Singapore Exchange traded as high as $158.50 a tonne this week, said Jamie Pearce, head of iron ore broking at SSY Futures, more than $3 above the current spot rate.
‘That shows everyone is thinking that prices are going to continue to rally post Chinese New Year,’ Pearce said, but added that some also do not expect a rally to last too long with forward contracts <0#SGXIOS:> still below the spot price.
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> was unchanged at $155.10 a tonne this week as physical trades ground to a halt with the Chinese away for Spring Festival.
Iron ore hit a high of $158.50 on Jan. 8, its loftiest since October 2011, as the Chinese restocked ahead of the holidays, and traders said a new peak for the year may be set soon after China returns.
Before the week-long break, Shanghai steel rebar futures rose to their highest in nine and a half months amid increasing optimism that the Chinese economy will see brisker expansion after nearly two years of slower growth.
‘Given current low iron ore inventories at port levels and low steel inventories at various cities, we expect end users’ purchasing to pick up after the Chinese New Year break,’ Deutsche Bank said in a note.
Rio Tinto , the world’s No. 2 iron ore producer, expects prices to remain strong with fewer projects than expected to come on stream this year due to logistical and funding difficulties.
‘I expect that prices will come off a bit but still be robust,’ Rio Tinto’s new chief executive, Sam Walsh, said on Thursday.
Walsh said he would slash costs, sell weak assets and spend more carefully after Rio reported a $3 billion full-year loss, its first ever. (agencies)
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