Spot iron ore prices are headed for a third straight weekly gain after rising to their highest level since late May as Chinese steel mills replenished stockpiles. Brisk gains in prices of spot iron ore cargoes this week point to a market in recovery after a slide to 21-month lows in mid-June.
But traders said further gains hinge on a pickup in steel demand in top consumer China and a sustained decline in stocks of imported iron ore across Chinese ports, which have risen more than 30 percent this year. Iron ore for immediate delivery to China climbed 1.9 percent to $96.50 a tonne on Thursday, it's highest since May 28, based on data provided by Steel Index. The price of the raw material - the top revenue earner for miners Vale and Rio Tinto - has recovered more than 8 percent since touching a 21-month trough of $89 on June 16. It has gained 1.7 percent for the week so far.
"There's a growing view that the price would bounce to $100 soon or even above that so mills and traders are taking this chance to order some cargo," said an iron ore trader in Rizhao city in China's eastern Shandong province. Medium-sized Chinese steel producers were restocking iron ore after their inventories dropped to 15-20 days of use from 20-30 days normally, he said.
Iron ore has stayed below $100 a tonne since breaching that level on May 19. An amply supplied market has made it difficult for prices to stage a firm recovery, but some traders were optimistic this week's ascent could be sustained given increased appetite for spot cargoes. The price gains came amid signs of strength in the Chinese economy, after factory activity hit multi-month highs in June, based on official and private surveys released earlier this week.
China's economic performance has improved in the second quarter from the first quarter, though the downward pressure should not yet be ignored, Premier Li Keqiang said in a statement published on Friday. Iron ore for delivery in September on the Dalian Commodity Exchange fell 0.7 percent to close at 711 yuan ($110) a tonne on Friday and down marginally for the week. Last week, the September contract jumped nearly 6 percent, the biggest gain for a most-active contract since the bourse launched it in October.
The July iron ore contract on the Singapore Exchange retreated 1.1 percent to $95.50 per tonne. In a sign that demand for spot seaborne cargoes is picking up, premiums for miner BHP Billiton's iron ore lump rose this week to 5.5-6 cents per dry metric tonne from 3-3.5 cents last week, the Shandong trader said, adding his company just bought 80,000 tonnes of iron ore lump.
Prices for imported iron ore cargoes at Chinese ports also rose 10-20 yuan a tonne this week, said a trader in Shanghai, but added that port stocks should keep falling to sustain price gains. Inventory of imported iron ore at 44 Chinese ports fell to 112.65 million tonnes last Friday, from a record high 113.65 million tonnes the week before, according to Steelhome, which tracks the data. The 1 million tonne drop was the biggest weekly drop in stocks this year.
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