- Dalian iron ore hit 3-year high before retreating
- Weaker futures may drag down spot iron ore prices again
(Updates prices)
Iron ore and steel futures in China dropped 1 percent on Wednesday, falling back after rapid gains that pushed the steelmaking raw material to its highest in three years.
Iron ore has been tracking steel prices that have benefited from China's efforts to cut excess production capacity, but some traders say the spike in iron ore futures - which lifted the spot benchmark to a two-year peak - was too fast too soon.
"It was driven by money," said an iron ore trader in Beijing, citing speculative activity in the futures market.
"There was some demand to stockpile iron ore ahead of the holiday but I don't think the demand was quite that strong," she said. Chinese markets will be shut for a week for the nation's Lunar New Year break in late January.
The most-traded iron ore contract on the Dalian Commodity Exchange DCIOcv1 closed down 1.2 percent at 638 yuan ($93) a tonne, after earlier hitting its loftiest since December 2013 at 666 yuan.
On the Shanghai Futures Exchange, rebar SRBcv1 slipped 1 percent to 3,292 yuan per tonne. The construction steel product touched a one-month high on Monday.
Iron ore has increased 16 percent so far this month and rebar has risen 13 percent, as both commodities extended last year's massive gains that came after years of declines.
Restocking demand for iron ore ahead of China's Lunar New Year holiday that starts at the end of next week has waned, and could weigh on prices, traders said.
"We asked several mills and they said they have already bought enough cargo for the coming holidays," said a trader in Shanghai.
Iron ore for delivery to China's Qingdao port <.IO62-CNO=MB> fell 2.5 percent to $81.55 a tonne on Tuesday, a day after touching a 27-month high, according to Metal Bulletin.
($1 = 6.8475 Chinese yuan)
