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 percent since touching a 21-month trough of $89 per tonne in June on increased supply of the raw material to China.
Australian miner Fortescue Metals Group said it expects the market to rebalance in the short term as higher cost producers, including those in China, leave the market, stabilising the price.
"There's still a lot of supply but demand for high-grade material is relatively bigger than low-grade," said an iron ore trader in Shanghai.
A 60,000-tonne cargo of 62-percent high-grade Australian iron ore fines was sold at $97 a tonne via the globalORE platform on Friday, up from $96.50 on Thursday.
The benchmark 62-percent grade iron ore for immediate delivery to China .IO62-CNI=SI rose 0.3 percent to $96.90 a tonne on Thursday, according to data compiled by Steel Index. 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 $100 a 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.
Some traders were not convinced the price recovery would be sustained.
"I think $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," said another Shanghai-based trader.
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, analysts say.
"Steel mill stocks generally average one month of consumption and recent conditions indicate that mills are in no hurry to buy more," Australia and New Zealand Bank analysts said in a note.
"Any price gains over the next week are unlikely to be sustained as mills try to protect fragile profit margins."
Iron ore for September delivery on the Dalian Commodity Exchange rose 0.6 percent to close at 712 yuan ($110) a tonne on Friday.
The most-traded January rebar contract on the Shanghai Futures Exchange gained 0.3 percent at 3,128 yuan per tonne.
Shanghai rebar futures and iron ore indexes at 0702 GMT Contract Last Change Pct Change SHFE REBAR JAN5 3128 +8.00 +0.26 DALIAN IRON ORE DCE DCIO SEP4 712 +4.00 +0.56 THE STEEL INDEX 62 PCT INDEX 96.9 +0.30 +0.31 METAL BULLETIN INDEX 96.55 +0.08 +0.08 Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day
Source: Reuters
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