China's iron ore futures jumped to a new record high on Wednesday, fuelled by a persistently bullish outlook as steel mills look to source raw material after running down stocks. The most-traded iron ore futures on the Dalian Commodity Exchange climbed as much as 4.1% to 733 yuan ($106.08) per tonne, the highest since contracts were launched in 2013.
It closed up 3.4% at 728 yuan a tonne. Steel mills have been operating at low inventory levels and only purchasing hand-to-mouth from ports due to high raw material prices. Market estimated that average iron ore stocks at mills have fallen to around 20 days of use, down from normal inventory levels of 30 days. Ore stocks at some private mills in top steelmaking province Hebei have dropped to only 10 days, according to two purchase managers at steel mills in Hebei.
"With strong profitability, mills will still need to buy expensive raw materials to maintain full-load operation," a Hebei-based trader said. Meanwhile, investors also fretted about further supply disruption from Brazil, China's second largest iron ore source, after its biggest iron ore miner Vale SA warned of the risk of another tailings dam rupture and suspended a rail freight line. Iron ore shipments from Brazil fell by 416,000 tonnes for the week ended May 19 from a week earlier, while departures from Australia added 1.69 million tonnes, according to data tracked by Mysteel consultancy.
Fortescue Metals Group Ltd, the world's No.4 iron ore miner, said on Wednesday it would spend about $287 million to develop the Queens Valley mining area in Western Australia. Benchmark construction steel rebar prices rose 1.7% to 3,910 yuan a tonne, while Hot-rolled coil gained 1.7% to 3,757 yuan. The Dalian coke contract soared as much as 5.3% to a 9-month peak of 2,338 yuan a tonne, supported by firm physical prices and expectations of tightened environmental measures in the major coke producing region.
Shanxi was found by central inspectors to have relaxed environmental policies on its coking industry despite repeated orders from Beijing to curb production from coke plants. The authorities have granted 30 working days until early June to formulate a plan to resolve the problem. Coke plants in Shanxi, Hebei and Shandong have hiked physical coke prices by 100 yuan per tonne this week. Coking coal futures edged down 0.3% to 1,387.5 yuan a tonne.
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