Spot iron ore topped $140 a tonne for the first time in a month as firmer steel prices encouraged Chinese producers to restock the raw material, hoping demand will pick up during the seasonally stronger second quarter.
Iron ore has rebounded around 6 per cent after hitting three-month lows in mid-March, but remains nearly 12 per cent below this year's peak. Further price gains will hinge on whether steel sales in China, the world's top consumer and producer, gather pace.
Benchmark 62-per cent grade iron ore climbed 1.1 per cent to $140.60 a tonne on Wednesday, the highest level since March 12, according to data compiler Steel Index.
"We are getting more enquiries for cargo, there's a bit of replenishment that's going on," said a physical iron ore trader in Hong Kong.
Steel demand in China typically peaks during the second quarter as construction projects resume along with a shift to warmer weather.
But with first-quarter demand slower than normal, dragging down steel prices and bloating inventories to record levels, traders say April-June demand has to be much stronger.
"We might see some resistance from mills if iron ore rises to $145 and steel demand doesn't perk up," the trader said.
Miner Rio Tinto sold a cargo of 61-per cent grade Australian Pilbara iron ore fines at $140.88 a tonne in a tender on Wednesday, up from $135.88 at a tender for the same grade last week, traders said.
Rio offered the cargo at tender after failing to draw high bids when it first tried to sell it via the China Beijing International Mining Exchange (CBMX) platform on Tuesday with an offer of $140.50 per tonne, traders said.
On Thursday, a 20,000-tonne cargo of 63.5-per cent grade Brazilian fines traded at 1,020 yuan a tonne on CBMX, traders said.
That works out to about $146 per tonne excluding port and other charges, higher than Platts 63.5-per cent grade assessment of $143.40, suggesting mills are willing to pay high prices at the moment, said the Hong Kong trader.
Swaps rise
Iron ore swaps extended recent gains as traders anticipated higher spot prices.
The May contract traded at $138.25 and at $138.50 a tonne in Asian deals, up against Wednesday's settlement of $137.25. The June contract rose to $133 from $131.81.
The contracts are cleared by top global clearer Singapore Exchange, which set a record monthly volume of 18.5 million tonnes in March. That brought cleared contracts for the first quarter to 51.5 million tonnes, also an all-time high for a three-month period, the exchange said in a statement.
But other traders are exercising caution given how volatile iron ore prices have been in recent years.
"Currently we only have 70,000-80,000 tonnes of cargo that are arriving. That is a third of our normal volume in a month," said a Shanghai-based trader.
"We're waiting to see whether steel prices will stay high for a longer period of time."
The most active October rebar contract on the Shanghai Futures Exchange had climbed nearly 1 per cent to 3,875 yuan ($630) a tonne by 0532 GMT. That is up almost 5 per cent from last week's four-month lows, but 12 per cent below this year's high.