Iron ore surged toward $60 a metric ton, climbing to the highest level in a month, as purchases from steel mills in China picked up amid improving profitability in the world’s largest user.
Ore with 62 percent content delivered to Qingdao in China advanced 4.6 percent to $59.22 a dry ton on Tuesday after jumping 4.8 percent the previous day, according to Metal Bulletin Ltd. So far in 2016, prices have risen 36 percent.
The surge this year has surprised many analysts, who’d expected a fourth year of losses driven by rising low-cost supply from the top miners and weaker steel demand in China. The raw material has rallied as Chinese policy makers signaled they’d support economic growth, and data this week showed the producer-price index snapping a two-year streak of decreases. Demand from mills is rebounding as their profitability improves, with steel prices rising, according to Australia & New Zealand Banking Group Ltd.
“Steel producers are a bit more enthusiastic about buying iron ore because prospects for demand and the Chinese economy look pretty good,” Dang Man, an analyst at Maike Futures Co., said before the data were released. “The exuberance in the steel market hasn’t ended.”
Steel Soars
Steel reinforcement bar in China, used in construction, has jumped about 31 percent in 2016 after five years of losses. The contract on the Shanghai Futures Exchange rallied 2.2 percent to 2,344 yuan ($363) a ton on Tuesday to the highest close since June. Hot-rolled coil futures have soared about 40 percent this year to the highest since January 2015.
Data this week that showed the first on-month increase in China’s factory-gate prices since 2013 have added to signs of improvement in Asia’s largest economy, which has also seen rising property prices in some bigger cities. Chinese mills are the largest buyers of seaborne iron ore and account for about half of global steel supply.
There are still bears predicting that iron ore’s rally just won’t last. An increase in seaborne supply and higher China port inventories in recent weeks suggest that downward price pressure is imminent, Axiom Capital Management Inc.’s analyst Gordon Johnson said in a note on Monday. Goldman Sachs Group Inc. is targeting a drop to $35 a ton by year-end, while Citigroup Inc. projects an average of $38 for 2016.
Steel production and demand are expected to contract in China this year as policy makers pivot away from heavy industry. Data on economic growth in the first quarter, as well as industrial production including output of crude steel, are due for release on Friday.