Iron ore futures in China pulled back on Wednesday as investors locked in recent gains after the steelmaking raw material earlier rose to the highest in more than two years amid stronger steel and coal prices and a mending Chinese economy. Activity in China's manufacturing sector expanded at the fastest pace in over two years in October thanks to a construction boom, according to data released on Tuesday.
Iron ore for January delivery on the Dalian Commodity Exchange climbed as far as 509 yuan ($75) a tonne, its loftiest since July 2014. The contract closed down 1.8 percent at 491.50 yuan, in line with a retreat in other commodities on Chinese exchanges such as aluminium and rubber after recent gains.
Dalian iron ore gained more than 20 percent in October, driving a 16 percent increase in spot iron ore prices. Iron ore for delivery to China's Tianjin port rose 0.9 percent to $64.40 a tonne on Tuesday, the highest since April 29, according to The Steel Index. Traders have mostly attributed iron ore's climb to the strength in coal prices as mills sought higher grade iron ore to be able to use less coal.
But Goldman Sachs said it may have more to do with the recent weakness in the yuan. "A rising dollar/yuan led onshore investors to seek dollar-linked assets such as commodities and iron ore may be the first in line to benefit from such investment flows," Goldman analysts said in a report.