Iron ore prices have increased by more than 50% since their September lows on signs that China’s economy is recovering.

Prices climbed to their highest level in five months to US$126.40/t in mid-December on the back of expectations that pro-growth policies from the world’s second largest economy would boost the market.

Import prices of iron ore continued to rise in the week ending on December 24, with mills replenishing stocks amid a tentative rebound in the steel sector. The price index for 63.5%-grade iron ore imports increased six points to 137 during the week, while the index for 58%-grade imports also climbed six points to 118. Positive November economic data and expectations that the new Chinese leadership will boost growth helped lift the flagging steel industry, prompting mills to restock iron ore and supporting prices of the steelmaking ingredient. The rapid increase in iron ore prices was mainly due to a big drawdown in port inventories.

The report showed that inventories of imported iron ore at 25 major Chinese ports stood at 80.3Mt at 24 December, down 2.41Mt, or 2.91%, from a week earlier according to the Xinhua-China Iron Ore Price Index (Xinhua-China IOP Index) released on Dec. 25. Stocks of imported iron ores at ports continued declining sharply and, ore traders’ reluctance to sell also increased tensions in market supply.

This ore resource strain pushed up prices but steel mills slowed down purchases after the rapid rise in the price of imported ore. Steel mills are expected to become cautious about procurement in the future, which would ease the resource tensions. Furthermore, cold weather would dampen the demand from downstream sectors, which would be an obstacle to further ore price increases with prices of imported ore likely to rise slightly within a narrow range in the next few weeks.

Source: China Metals e-mail