iron ore prices hit new eight-month peak

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Iron ore prices hit new eight-month peak

Published 6:46 PM, 14 Jan 2011

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Reuters

SINGAPORE - Spot iron ore prices jumped to fresh eight-month highs and offers rose another half a per cent, reflecting firm demand from top buyer China and tight supplies.

Rising cost of raw materials, including coking coal after massive floods devastated Australia, boosted rebar futures in Shanghai to a record high and helped it post its biggest weekly gain since early November.

Some Chinese steelmakers have started reselling some iron ore stocks back to the market to cash in on surging prices while some exercised caution in buying more for fear prices could drop after the Lunar New Year in early February, traders said.

The three major iron ore indexes, which track spot transactions in China, have risen between 1.4 per cent and three per cent so far this week, after touching their highest levels since late April to early May.

"With Chinese mills well stocked for the remainder of January and February, recent bookings at improved prices for March/April delivery suggest a bullish outlook on Chinese steel for the spring," the Steel Index (TSI) said in its daily report.

"Some steel mills, which have ample inventories, have even started to resell some tonnages which is more profitable than selling steel products, while some have slowed down on their purchases this week after building up enough stocks," a Beijing-based iron ore trader said.

Traders holding high-grade Australian fines sold their cargo at rates as high $US184 a tonne, cost and freight to China, on Thursday, up from $US183 the previous day, TSI said.

Global miner BHP Billiton Ltd has begun auctions for spot iron ore shipments to Chinese steel mills, the China Securities Journal reported, as the world's third largest iron ore producer tries to cash in on surging prices.

On Thursday, the Platts 62 per cent iron ore index edged up 25 cents to $US177 a tonne, and the TSI 62 per cent benchmark rose $US1.10 to $US176.50.

Metal Bulletin's 62 per cent gauge gained 54 cents to $US174.02.

Indian ore with 63.5 per cent iron content was quoted at $US183 to $US185 a tonne, C&F, on Friday, up from $US182 to $US184 on Thursday, Chinese consultancy Mysteel said.

Record rebar

Many steelmakers across Asia have raised product prices due to rising cost of raw materials like iron ore and coal, but South Korea's POSCO , the world's third largest steel producer, warned it would be difficult for them to fully pass on the costs.

The most active May rebar contract in the Shanghai Futures Exchange rose 1.2 per cent a contract high of 4,918 yuan per tonne on Friday, before closing at 4,903 yuan, up 0.9 per cent.

The contract was up 2.3 per cent for the week, its largest weekly gain since a 4.5 per cent rise on the week ended November 5.

Some traders are worried iron ore prices could drop after the week-long Lunar New Year next month with China's steel production outpacing demand.

"Prices are too high and it may be hard for the downstream industry to accept the high cost," an iron ore trader in China's eastern Shandong province said.

"If demand for steel products doesn't improve after the Chinese New Year, iron ore prices will definitely go down."

The iron ore forward swap market rose for a second day on Thursday, suggesting upbeat price outlook among investors.

The Singapore Exchange-cleared February contract rose $US1.56 to $US172.81 a tonne, March jumped $US1.81 to $US171.06 and April climbed $US2.52 to $US166.62.