Iron ore prices rose to their highest levels in three months on Tuesday, amid seasonal restocking by China’s steel mills following the lunar new year holiday.
Iron ore with 62 per cent iron content for delivery to China, a key steelmaking ingredient and a big source of profits for miners such as BHP Billiton and Rio Tinto, rose to $46.10, its highest level since November 17, according to the Steel Index.
Iron ore is up 5 per cent this year, outperforming most other commodities apart from gold.
The gains this week have been driven by Chinese steel mills restarting after the week-long new year break, and amid a short-term supply tightness in the market, according to analysts.
Iron ore supply from Brazil has been hit after the closure last November of the Samarco mine, a joint venture between Brazil’s Vale and Australia’s BHP Billiton, following a dam burst.
“Because of some tonnes switched off for winter and the Samarco losses the market is notionally undersupplied,” said Melinda Moore, a client supervisor for ICBC Standard Bank in London.
Iron ore futures traded in China have also benefited from improving sentiment after data showed that credit and bank loans in the country rose to a record in January. Chinese stocks rose on Tuesday, with the Shanghai Composite Index up 3.3 per cent.
The most-traded iron ore futures contract on the Dalian Commodity Exchange rose 0.6 per cent to Rmb339 after climbing to its strongest level since October on Monday.
But steel demand in the country, the world’s largest consumer of the construction metal, remains uncertain. China has vowed to cut its steel capacity as the industry struggles with weak domestic demand and trade friction overseas.
Iron ore prices hit $37 a tonne in December, the lowest price since 2009.
While China’s State Council has vowed to close up to 150m tonnes of steel capacity, the Tangshan Ganglu Steel works will restart output after it was acquired by subsidiaries of state-owned Aviation Industry Corp of China, according to industry publication MetalBulletin.
Source: FT