Iron ore rose for a seventh straight day in its longest winning streak since mid-November as Chinese steel mills replenished stockpiles and traders bet on further gains with Beijing gearing up for a pickup in the steel market.
Sellers of imported iron ore in China lifted offer prices further on Wednesday by another dollar per tonne, raising them by $4-$5 since last Friday, based on data from Chinese consultancy Umetal.
Iron ore with 62 percent iron content rose 1.8 percent to $143 a tonne on Tuesday, according to Steel Index, its priciest since Feb. 8.
It marked the seventh consecutive day of gains for iron ore, its longest since a 14-day rally up to Nov. 17. The steel raw material is poised to rise for a fourth month in a row in February.
Chinese mills are restocking on iron ore as they slowly ramp up steel output ahead of the seasonally busy periods in March and April for the construction and manufacturing sectors, traders and analysts said.
But some are doubtful whether the iron ore demand will be sustained.
"We are quite sure that end-user demand has not yet picked up, so mills will be very cautious," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.
Liu said he sees a downside risk for steel prices, for both long and flat products, in the near term.
"Steel traders are buying high and selling low now, suggesting that the current rise in ex-factory prices is mainly being driven by steel mills rather than end-user demand," said Liu.
NOT TOO CONFIDENT
Spot steel prices in China rebounded last week, encouraging mills to buy more iron ore.
The average price of rebar in China climbed 1.6 percent to 4,198 yuan ($670) a tonne on Friday from the previous week, while hot-rolled coil increased 0.8 percent to 4,242 yuan, according to data compiled by Bank of America-Merrill Lynch.
But Shanghai rebar futures struggled to add to recent gains, ending Wednesday nearly flat at 4,295 yuan a tonne, and down half a percent for the month.
"We are not too confident about the steel market. We've been talking to different mills and they said they're not making any profit when they buy iron ore at current prices, so I don't know how long this buying can last," said a physical iron ore trader in Shanghai.
Liu of Mirae Assets estimates that current profit margins at Chinese steel producers range anywhere from zero to 3 percent.
Miners remain confident China's demand for iron ore will stay strong longer term, with many boosting output to cash in on Beijing's appetite.
But world No. 2 iron ore producer Rio Tinto said tighter credit and labour shortages would thwart miners' plans to boost iron ore output, joining other majors in playing down concerns the market would soon be oversupplied.
Financial institutions had tightened credit considerably amid troubles in the euro zone, which meant banks were more willing to back majors in projects, but the juniors "would find it very, very difficult," Sam Walsh, the head of Rio's iron ore unit, said at an industry conference in Beijing.
Rio said it was confident of its own production expansion plan.
Source: Reuters