Traders pushed spot iron ore prices to six-month highs in anticipation of a brisk pickup in steel demand in China, with Shanghai rebar futures hovering near three-month peaks on Thursday.
The upturn could soon a hit a wall, however, if appetite for steel in top consumer China, expected to be more robust with construction activity recovering on better weather conditions, disappoints, traders and analysts said.
Iron ore with 62 percent iron content, the industry benchmark, rose half a percent to $148.70 a tonne on Wednesday, according to Steel Index. Another price provider, Platts, puts a similar gauge IODBZ00-PLT at $151.25 a tonne.
Those are the highest levels since mid-October, and put the raw material's year-to-date gain at 7-8 percent after last year's nearly 20 percent fall.
"What you're seeing is a little bit of froth from traders trying to anticipate that steel demand in China will be strong over the next few weeks," said a physical iron ore trader in Singapore.
Firmer prices at recent sale tenders by major miners were aiding to the bullish market tone.
Rio Tinto sold Australian Pilbara iron ore fines on Wednesday at $149.1 a tonne, about a dollar more than a previous tender, traders said. It followed similarly higher sale prices at a tender by BHP Billiton earlier in the week.
Those buying were taking their cue from Chinese steel prices, which have mostly recovered from lows in January and February, as demand improves.
The most-traded October rebar contract on the Shanghai Futures Exchange hit a high of 4,399 yuan ($700) a tonne on Thursday, near Monday's peak of 4,402 yuan which was its loftiest since Jan. 17. Rebar, used in construction, closed up 0.3 percent at 4,392 yuan.
NOT SUSTAINABLE?
China's average daily crude steel output stood at 1.904 million tonnes in March, based on data from the China Iron and Steel Association, recovering from around 1.7 million tonnes in the first two months of the year.
But the latest March number remained slightly below the 1.923 million tonnes set in March 2011, when mills rapidly stepped up production to supply a construction boom.
"If the anticipated future demand by the construction sector does not materialise we would expect weaker steel and iron prices in the next two to three months," Commonwealth Bank of Australia said in a note.
Not all Chinese steel producers are sold on the idea that demand for their products will recover strongly.
Baoshan Iron & Steel, whose pricing moves are seen as a bellwether for the industry, said it would keep the prices of its main steel products unchanged for May bookings.
"It's mostly traders betting on the market going higher (that's pushing up prices). It can continue but it's not sustainable," said a Hong Kong-based iron ore trader.
"I don't think traders are buying cargoes and selling them to steel mills today, so on the mills' side there's no buying frenzy out there."
Source: Reuters