Iron ore futures in China climbed more than 4 percent at one point on Friday to hit their highest level since April, spurred by a recovery in steel prices as the market looked to a pickup in demand after summer.
Citing low inventory of steel products among Chinese traders, Argonaut Securities analyst Helen Lau said “a seasonal demand pickup after summer may result in further increase in steel prices amid a possible supply squeeze.”
Stocks of rebar, a construction steel product, at 28 major Chinese cities stood at 3.5182 million tonnes as of July 29, not far above the 3.4235 million tonnes level in mid-July, the lowest since at least December 2011, according to data tracked by SteelHome consultancy.
The most-traded rebar on the Shanghai Futures Exchange was up 2.8 percent at 2,530 yuan ($381) a tonne by midday. The contract touched 2,555 yuan earlier, the highest since July 15.
On the Dalian Commodity Exchange, the most-active iron ore was up 3.2 percent at 490 yuan per tonne, after rising as far as 495.50 yuan, its strongest since April 25.
Both commodities dropped nearly 2 percent on Thursday after scaling multi-week highs earlier in the week.
The recovery in China’s iron ore futures, the world’s most liquid derivative market for the steelmaking raw material, could fuel a recovery in spot prices which fell back below $60 a tonne on Thursday.
Iron ore for delivery to China’s Tianjin port slid 3 percent to $58.90 a tonne, after topping $60 earlier this week for the first time since May, based on data compiled by The Steel Index. The spot benchmark was nearly flat for the week.
BMI Research, part of Fitch Ratings, believes iron ore will trade between $50 and $65 for the rest of the year.
“Prices will be supported by sustained demand from steel mills restocking iron ore, as resurgent Chinese steel prices will continue to incentivise domestic steel production,” BMI said in a report.
BMI has increased its average iron ore price forecast for this year to $53 from $48 previously, and for 2017 to $45 from $43, citing sustained demand from Chinese steel mills and domestic iron ore production coming offline at a faster pace than it had anticipated, reducing excess capacity.