Iron ore steadied in thin pre-holiday trade after a three-week rally with markets cautious over weak steel demand in China, the world’s top steel and iron ore consumer.
The benchmark index for 62-per cent grade iron ore was $135.4 a tonne last Friday, almost flat with $135.5 a tonne on Thursday, according to the Steel Index. It clung to an almost five-and-a-half month high.
Chinese traders have taken advantage of a rapid rundown at port inventories and an improved expectation on China’s economic growth to drive up prices by about 17 per cent so far this month.
“Steel mills have managed to destock iron ore this year amid uncertainties in prices, but they have done this too much, which triggered more volatilities in the market instead,” said an iron ore trader in Shanghai.
Iron ore inventories at China’s main ports hit a two-year low by last Friday, falling 2.06 million tonnes to 73.81 million tonnes and marking the eighth consecutive weekly decline, according to data from industry consultancy Mysteel.
“The rally in iron ore prices driven by some traders might not be sustainable, as cold weather will continue to hit steel demand, but tight supply and high steel output may support iron ore,” the trader added.
Some traders expected a new round of gains in iron ore prices, as steel mills need to restock before the week-long Lunar New Year in early February.
Steel demand typically declines in northern China towards the end of the year, as cold weather hits construction activity, denting consumption of rebar. However, a steep drop in inventories may spark a stronger price recovery when traders start to restock.
The most active rebar futures for May delivery on the Shanghai Futures Exchange traded almost flat at 3,790 yuan ($610) a tonne by midday break today, after posting gains over the past three consecutive weeks.