Iron ore prices hit a five-month high, signalling that demand from Chinese steel mills – the leading consumers of the commodity – has recovered.
Excess inventories that had weighed on the market in the middle part of the year have now been run down.
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The benchmark for iron ore delivered to China – with 62 per cent iron content – rallied to $132.75 a tonne, according to price reporting agency Platts, the highest since mid-July.
The commodity, used to produce steel, is almost 50 per cent higher from this year’s low of $88.75 a tonne, hit in early September.
Better economic news also supported the market. The rise in December’s HSBC Flash PMI for the manufacturing sector in China to 50.9, its highest level for 14 months, boosted confidence among traders.
Analysts at Macquarie said the price moves in iron ore were “a classical V-shaped recovery” and reflected the fall and rise in demand.
Chinese mills found themselves with growing inventories as crucial construction demand for steel faltered earlier in the year.
Colin Hamilton, head of commodities research at Macquarie in London, said small Chinese mills, which had run down their inventories, had now restocked.
Inventory levels were at about 17 days’ worth of consumption when the iron ore price fell below $90 in September and had rebounded to a more normal level of about 28 days, he added. This has cast some doubt on a sharp rally in iron ore prices from the current levels.
“The upside in iron ore prices from current levels related to restock alone is limited,” he said, forecasting an average $140 a tonne for the first quarter.
The rebound will be a relief to large mining groups, which have large exposure to the commodity.
Excess inventories that had weighed on the market in the middle part of the year have now been run down.
More
ON THIS STORY
Sluggish gold slips below $1,700
Beijing set to buy up base metals
Rusal upbeat on China aluminium demand
Video Private equity pickle
China props up Kryso Resources
ON THIS TOPIC
China on a cereal buying spree
China trade suffers on global fears
China’s carmakers crank up exports
China to subsidise rare earths producers
IN COMMODITIES
SEC approves JPMorgan copper ETF
Canada’s oil now the cheapest in the world
Sugar tumbles on big Brazilian harvest
Opec quotas held despite demand fears
The benchmark for iron ore delivered to China – with 62 per cent iron content – rallied to $132.75 a tonne, according to price reporting agency Platts, the highest since mid-July.
The commodity, used to produce steel, is almost 50 per cent higher from this year’s low of $88.75 a tonne, hit in early September.
Better economic news also supported the market. The rise in December’s HSBC Flash PMI for the manufacturing sector in China to 50.9, its highest level for 14 months, boosted confidence among traders.
Analysts at Macquarie said the price moves in iron ore were “a classical V-shaped recovery” and reflected the fall and rise in demand.
Chinese mills found themselves with growing inventories as crucial construction demand for steel faltered earlier in the year.
Colin Hamilton, head of commodities research at Macquarie in London, said small Chinese mills, which had run down their inventories, had now restocked.
Inventory levels were at about 17 days’ worth of consumption when the iron ore price fell below $90 in September and had rebounded to a more normal level of about 28 days, he added. This has cast some doubt on a sharp rally in iron ore prices from the current levels.
“The upside in iron ore prices from current levels related to restock alone is limited,” he said, forecasting an average $140 a tonne for the first quarter.
The rebound will be a relief to large mining groups, which have large exposure to the commodity.
