Limited supplies and sustained buying interest from top consumer China lifted spot iron ore prices for an 11th straight day and the market stayed well bid on Tuesday, suggesting the upward momentum may not lose steam soon.
Firmer Chinese steel futures this month helped iron ore rebound from a more than 30 percent slide in October, encouraging steel mills to replenish run-down inventories of the raw material.
Iron ore with 62 percent iron content rose 0.4 percent to $138.30 a tonne on Monday, the highest since Oct. 24, according to the Steel Index.
Iron ore has gained 18.3 percent over the past 11 trading sessions.
"We're getting regular inquiries from China for cargo, from steel mills and traders and there isn't a lot available out there," said an iron ore trader in Shanghai who sells mostly Indian material to Chinese buyers.
Iron ore supply in the spot market has thinned with fewer tenders from Australia and Brazil, the world's two biggest iron ore exporters, while shipments from third-ranked India remain disrupted by logistical problems and the government's crackdown on illegal mining, traders said.
"Some of the sellers also feel that the market is rising and a lot of people are going to ask them for cargo so they want to hold off for a bit to get better prices," said the Shanghai trader, adding that prices may go up another $5-$10 from current levels.
Some buyers are bidding $148 a tonne, cost and freight for Indian high-grade 63.5/63 iron ore fines, said Dhruv Goel, managing director at Steel Mint in India's eastern Orissa state.
That is well above the offer price on Tuesday of $142-$145 a tonne of the Indian material in China, according to Chinese consultancy Umetal. Offers for Australian and Brazilian ore rose a further $1-$3 a tonne, Umetal said.
Despite rising prices, many Indian exporters, whose costs are inflated by export tariffs and high railway freight rates, are unwilling to sell at current levels, traders said.
Including freight, the cost of producing 63.5/63 grade in India is about $145-$150 a tonne, the Shanghai trader said. "It doesn't make sense to export at a loss. The mine owners can sell it to the domestic market where the return is better," he said.
Signs of easing credit conditions in China, particularly towards small and medium sized enterprises, may be helping steel prices recover some ground with product inventories at Chinese mills back to near recent lows on a days-of-supply basis, Commonwealth Bank of Australia said in a note.
"Declining inventories might reflect a combination of some production cuts, much lower pricing, better access to credit for SMEs and robust underlying demand," the bank said.
"To the extent underlying steel demand remains robust and credit conditions continue to ease in a 'targeted' fashion, we see China's commodity demand and prices as reasonably well supported."
The most-active May rebar contract on the Shanghai Futures Exchange eased 0.8 percent to close at 4,157 yuan a tonne on Tuesday, after two sessions of gains. Despite the loss, rebar is up 0.6 percent so far in November after three months of decline.