Iron ore climbed to its highest in more than three weeks as traders bet on a recovery in China's steel demand after the Lunar New Year holiday. But an industry group warned weak infrastructure and real estate investment may continue to weigh on China's steel consumption, after slashing profits at mills last month. Iron ore for immediate delivery to China's Tianjn port surged 2.8 percent to $65.10 a tonne on Monday, its loftiest since January 23, according to the Steel Index.
It was the biggest single-day jump for the benchmark price since it climbed nearly 5 percent on December 30. The spike came after Australian miners sold spot cargoes on the Beijing Iron Ore Trading Centre and globalORE trading platforms at higher prices, traders said. "I think the deals were done mostly between traders and miners because many mills were already in a holiday mood," said a Shanghai-based iron ore trader.
"If these people are so confident that the market will rebound after the holiday, I can only say good luck to them." Market fundamentals remain weak, with Chinese steel billet prices languishing at their lowest level in years, he said. Local suppliers have agreed to lock the price of billet in China's key Tangshan area at 1,990 yuan ($318) per tonne until after the week-long Lunar New Year holiday that starts on Wednesday, Standard Bank said in a note.
Profits of Chinese steel mills fell sharply in January and could swing to losses as utilisation rates at plants drop, the China Iron and Steel Association said in a report on Monday. "In the short term, real estate investment is retreating, infrastructure investment remains weak, and steel product demand is not viewed positively, and adding the Spring Festival holiday in February and the large numbers of domestic steel plants that have suspended operations for maintenance, iron ore demand will weaken significantly," the association said.
Average new home prices in China's 70 major cities fell 5.1 percent in January from a year earlier, the fifth consecutive month showing an annual fall. Steel and iron ore futures in China retreated on Tuesday after rising to multi-week highs in the prior session. The most-traded rebar for May delivery on the Shanghai Futures Exchange dropped 0.4 percent to close at 2,521 yuan a tonne. On the Dalian Commodity Exchange, the May iron ore contract eased 0.2 percent to 493 yuan per tonne.
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