China iron ore hits record high, tracks rally in steel

21 February 2017

Iron ore futures in China surged more than 5 percent to a record high on Tuesday, pushed by a sustained rally in steel prices as investors bet on strong demand and tighter supply as Beijing tackles excess production capacity.

Other steelmaking raw materials coking coal and coke extended gains amid possible curbs on coal output and China's suspension of North Korean coal imports.

"Revival of infrastructure investment has been driving demand for steel and hence iron ore," said Wang Fei, analyst at Hua'an Futures in Hefei in eastern China.

Traders and analysts expect construction and industrial activity to gain steam from March when spring begins.

The most-traded iron ore on the Dalian Commodity Exchange rose as far as 741.50 yuan ($108) a ton, its strongest since the bourse launched the contract in October 2013. It closed up 3.8 percent at 732 yuan.

Rebar on the Shanghai Futures Exchange ended 1.7 percent higher at 3,575 yuan per ton. The construction steel product touched 3,630 yuan earlier, its loftiest since February 2014.

"While we anticipate resilient steel demand in China this year on the back of infrastructure investment, we think current pricing is too optimistic," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

Iron ore has piggybacked on the strength in steel prices, and the rally comes despite a rising mountain of the raw material at Chinese ports.

Stockpiles of imported iron ore at major Chinese ports reached 127.55 million tonnes, the most since at least 2004, according to data tracked by SteelHome consultancy.

Amid strong futures, spot iron ore for delivery to China's Qingdao port climbed 2.2 percent to $92.34 a ton on Monday, the highest since August 2014, according to Metal Bulletin.

BHP Chief Executive Andrew Mackenzie said he sees a little downside risk for iron ore prices as Chinese demand moderates.

"Overall investors remain bullish on steel and coal on a flurry of government announcements to cut steel capacity and curb coal output," said Wang.

China has strengthened its campaign since last year to slim down its bloated steel and coal industries, which have also contributed to the excessive smog in its major cities.

Dalian coking coal rose 1.1 percent to 1,268 yuan a ton and coke advanced 1 percent to 1,736 yuan.

China's top coal producers will meet to discuss plans for stabilising output this year, as Beijing stopped all imports of coal from North Korea from Sunday.