Spot iron ore prices jumped to the highest since March as seasonal Chinese demand was faced with limited availability of cargoes, which has helped prices recover by more than a third from last month's decade low. Lower iron ore exports from top suppliers Australia and Brazil, partly due to bad weather, have prompted Chinese buyers to secure more raw material from stocks at the country's ports, which last week dropped to their lowest level since January 2014.
"It's quite difficult to find any spot cargo in the market at the moment. The volume of arrivals has dropped," said a Shanghai-based iron ore trader. Goldman Sachs estimates there was a supply shortfall of about 6 million tonnes from Brazil and Australia last month, with vessel loadings in the latter disrupted by bad weather.
China's iron ore imports dropped 0.4 percent to 80.21 million tonnes in April from March. Iron ore stocks at Chinese ports on May 8 fell 4.7 million tonnes from the previous week to 92.15 million tonnes, data from consultancy SteelHome showed. Commonwealth Bank of Australia analyst Vivek Dhar said the fall in Chinese imports suggested the country's domestic supply had returned as prices recovered above $60 per tonne. "This would be consistent with our conversations with Chinese steel mills, who believe that Chinese domestic iron ore supply is returning as prices lift. This could potentially imply a cap on iron ore prices in the $60-$70 range," Dhar said in a note.
Iron ore for immediate delivery to China climbed 3.3 percent to $62.50 a tonne on Monday, the highest since March 2, according to The Steel Index. The steelmaking commodity has surged 34 percent since hitting a low of $46.70 in early April. But traders and analysts say sluggish steel demand in China, the world's top consumer of both steel and iron ore, could soon cap any further gains in iron ore, along with an increase in global ore supply as top producers stick to expansion plans.
"Now the mills are in a difficult position because iron ore prices have increased so much while steel prices have not, so their margins have either decreased to zero or turned negative," said the Shanghai trader. While spot iron ore prices have rebounded by over a third since early April, Shanghai rebar steel futures have only risen by around 3 percent in the same period. The most traded rebar contract on the Shanghai Futures Exchange fell 1.2 percent to close at 2,391 yuan ($385) a tonne. Iron ore for September delivery on the Dalian Commodity Exchange dropped 0.8 percent to 437 yuan per tonne.