Tight supply stokes China iron ore's record-breaking rally

Manila

DALIAN iron ore prices surged to a record on Thursday, snapping a three-day decline on renewed concerns about tightening supply of the raw material, while steel rebar futures extended their rally amid output cuts intended to curb pollution in China.

The most-active September iron ore contract on the Dalian Commodity Exchange jumped as much as 5.4 per cent to an all-time high of 838.5 yuan (S$165.17) a tonne, exceeding the previous 837 yuan-a-tonne record touched on June 20. It closed 3.3 per cent higher at 821.5 yuan.

Market participants were mainly focused on the dwindling stockpiles at Chinese ports of "SH-TOT-IRONINV" which are at their lowest since the start of 2017, said a trader at Itochu (China) Holding Co Ltd in Beijing.

Worries over tightness, which lifted spot iron ore prices to five-year highs last week, eased earlier this week after Brazilian miner Vale SA resumed full operations at its Brucutu mine, according to analysts.

Vale, the world's No 1 iron ore producer, had suspended some mining operations in Brazil for safety checks following a deadly tailings dam burst in January, curbing supply to top steel producer China.

"While the Brucutu restart will help boost supply, shipping the additional volumes from Brazil to China could take about 45 to 60 days," the Itochu trader said.

Operational issues facing Australian iron ore producers are also adding to worries about supply, the trader said. Rio Tinto Ltd, for instance, has lowered its guidance on iron ore volumes it expects to ship from the key Pilbara region in Australia for the third time since April, citing operational problems.

"We expect (spot) iron ore prices by end of the year to remain much higher than last year's average of US$70 per tonne," the Itochu trader said.

The price of spot 62 per cent iron ore grade for delivery to China SH-CCN-IRNOR62 was at US$116.50 a tonne as of Wednesday, holding near five-year highs, data from SteelHome consultancy showed.

Higher steel prices, underpinned by output curbs in China's top steelmaking city of Tangshan and elsewhere, where industrial gas emissions have been found to be persistently high, also provided a boost to iron ore.

The most-active October steel rebar contract on the Shanghai Futures Exchange closed up 0.4 per cent at 4,001 yuan a tonne, after hitting 4,095 yuan earlier in the day, its highest since February 2011.

Other steelmaking raw materials ended lower, erasing earlier gains. Dalian coking coal was down 0.6 per cent at 1,375 yuan a tonne, while coke futures slipped 2.3 per cent to 2,054.5 yuan. REUTERS