Iron Ore-Spot at near 1-mth top as gains extend to Day 12

Thursday, 17 November 2011

Iron ore rose to its highest in nearly a month as spot prices gained for a 12th day in a row, with firmer steel prices in top consumer China encouraging more buying of the raw material and helping it recover from last month's slu
Iron ore with 62 percent iron content climbed nearly 6 percent to $146.30 a tonne on Tuesday, the highest since Oct. 19, according to the Steel Index .IO62-CNI=SI.
It has now gained 25 percent in the past 12 trading days, after sliding nearly 31 percent in October when Chinese mills cut purchases of iron ore as lower steel prices reflected weaker demand.

Steel prices in China's spot market rose last week, with rebar rising 0.7 percent to average 4,364 yuan ($688) a tonne and hot-rolled coil increasing 0.2 percent to 4,230 yuan, based on estimates by Bank of America-Merrill Lynch.
Profit margins at Chinese steel mills have similarly improved, with the industry average margin for rebar rising to 162 yuan a tonne from 135 yuan the previous week and 61 yuan in late October, according to the BoA-Merrill Lynch data.

"As long as steel mills' margins are positive, it makes economic sense for them to continue to produce and if they're eating into their iron ore inventories that means they need to keep buying ore, even if it's only hand to mouth," said an iron ore physical trader in Singapore.
"Based on current steel prices and with margins staying positive, we believe iron ore can go beyond $150."

Offer prices in China rose further on Wednesday, with cargoes from No. 1 producer Australia up $2-$3 a tonne, according to Chinese consultancy Umetal.
Australian Newman iron ore fines increased $3 to $148-$150 a tonne and Pilbara fines were also quoted $3 higher at $144-$147, Umetal said. The prices include freight cost.
BHP Billiton sold Newman fines at $149.20 a tonne at a tender on Tuesday, while Rio Tinto sold Pilbara fines at $144.50, also at a tender, traders said.

Limited availability of spot cargoes has also been supporting the current run-up in iron ore prices, with Indian exports restrained by logistical problems and higher production costs.
The cost of producing higher grade iron ore in India, the world's No. 3 iron ore exporter, stands at around $120 a tonne, free on board basis, more than double the cost in Australia and Brazil, the two biggest producers.

"But traders and mills have been very keen to buy for some time, and the sharply improved levels achieved on cargoes offered is a reflection of that pent-up demand," said Oscar Tarneberg, senior iron ore analyst at Steel Index in Shanghai.
Steep gains in prices of iron ore forward swaps investor optimism spot rates will move higher further in the near term.

The Singapore Exchange-cleared December contract rose the most on Tuesday, up $5.37 to $143.37 a tonne. The January contract gained $3.87 to $142.87 and February climbed $4.08 to $142.25.

Source: Reuters via hellenicshippingnews