SINGAPORE, July 5: Spot iron ore prices rose to six-week highs and are on track to post their biggest weekly gain in six months as Chinese steel mills replenished run-down inventories, although caution is rising after the sharp rally.
A spike in Shanghai rebar futures backed this week’s strength in iron ore, with prices trading at fresh six-week peaks on Friday and on track for their best weekly performance since December.
‘Mills have had very lean inventories of iron ore in the past two months and some people think steel prices may have bottomed out,’ a Hong Kong-based iron ore trader said.
‘But iron ore may have reached a short-term peak for now. Prices have risen too fast and the market needs to digest the increase.’
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> rose 1.2 percent to $122 a tonne on Thursday, its highest since May 23, according to data provider Steel Index.
‘In China, many traders are now holding on to cargoes on expectation of higher prices,’ the Steel Index said.
Iron ore, China’s top commodity import by volume, is up 4.7 percent so far this week, its biggest such gain since early January.
The gains in both iron ore and Chinese steel prices came after steep losses in the first half of the year that pushed prices to levels palatable for buyers.
Iron ore dropped about a fifth in January-June and Shanghai rebar futures fell 15 percent.
On Friday, the most-traded rebar contract for January delivery on the Shanghai Futures Exchange was up 0.3 percent at 3,627 yuan ($590) a tonne, after peaking at 3,638 yuan, its highest since May 22.
For the week, rebar is up almost 3 percent.
Steel inventories have been dropping steadily over the past few months, suggesting demand remains intact, although the pace may have been slower than recent years.
By late June, stockpiles of steel products held by Chinese traders stood at 15.8 million tonnes, down from a high of 20.6 million tones in mid-March, based on data compiled by Bank of America-Merrill Lynch.
But with July and August typically lean consumption months for steel in China as construction projects slow during summer, the pace of drawdown may not accelerate.
For iron ore prices, there is also the downside risk from increased global supply coming through in the second half of the year.
A Reuters poll of 14 analysts and traders showed iron ore will likely average at $126.10 a tonne this year, the lowest since 2009, as global seaborne supply increases the most since 2010.
‘The long-awaited ‘wall of supply’ is upon us, after an undersupplied hiatus extending across 6-7 years, driven by China’s galloping steel growth rates,’ Standard Bank said in a note earlier this week.
(AGENCIES)
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