China's iron ore futures jump nearly 4 percent

Iron ore futures in China jumped nearly 4 percent at one stage on Thursday to their highest since March, extending sharp gains from the previous session amid tighter stocks at the country's ports. Gains in futures are likely to give a further boost to spot iron ore prices that have recovered nearly 40 percent from a decade low in April, even as Chinese steel prices continue to reel from slow demand.
Iron ore for September delivery on the Dalian Commodity Exchange closed up 2.9 percent at 455 yuan ($73) a tonne, after peaking at 458.50 yuan, its highest since March 13. "There's not much cargo being offered by traders at the moment, particularly the mainstream grades being sought by mills," said an iron ore trader in Shanghai, referring to high-grade material from top supplier Australia.
Stocks of imported iron ore at China's ports fell to 83.8 million tonnes as of June 5, the lowest since November 2013, according to consultancy SteelHome. That marked the eighth straight week that port inventory has fallen. Iron ore for immediate delivery to China's Tianjin port rose almost 2 percent to $65.10 a tonne on Wednesday, a level last seen on February 16, based on data compiled by the Steel Index (TSI).
"The push on futures coupled with an ongoing lack of available cargoes at ports led to stronger demand for seaborne material," TSI said. The recovery in iron ore prices means improved margins for top miner Vale, which has cut its breakeven price to between $37 and $41 a tonne for 2015, from $43 previously, as it shaved costs. Chinese steel prices have risen far less than iron ore and the most traded rebar on the Shanghai Futures Exchange ended up just 0.6 percent at 2,355 yuan a tonne on Thursday.
While spot iron ore has rebounded 39.4 percent from a low of $46.70 in April, Shanghai rebar has risen just 4 percent from its April trough. Amid stuttering demand, the average daily crude steel output of China's large steel producers dropped 2 percent over May 21-31 from the previous 10-day period. In all of May, steel output fell 1.7 percent from a year before.
Helen Lau, a mining analyst at Argonaut Securities in Hong Kong, said the steel spread, or the price of steel minus the cost of raw materials iron ore and coking coal, is at its lowest since July 2013. "While steel plants may have incentives to maintain their steel prices, continuous destocking by traders will continue to weigh on market prices," Lau said in a note.