Iron ore edges higher, China inflation worries cap gains

Iron ore advanced on Thursday as benchmark steel futures in Shanghai rose for a second straight session, but gains were capped as top steel producer China reiterated its goal to rein in commodity inflation.

The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange ended daytime trading 0.7% higher at 1,178 yuan ($184.53) a tonne.

July iron ore on the Singapore Exchange SZZFN1 rose 2.1% to $209.10 a tonne by 0708 GMT.

The overall sentiment was positive with spot prices also extending gains, supported by strong fundamentals, analysts said.

The benchmark 62% iron ore traded at $213 a tonne in China on Wednesday, the highest since May 19, based on SteelHome consultancy data, although buying interest was stronger in lower-grade but cheaper materials as steel profit margins have recently narrowed.

“We’re already seeing reports surface that mills in China have a reduced preference for higher-grade ore with steel mill margins down 75-85% from peaks in mid-May,” said Vivek Dhar, commodities analyst at Commonwealth Bank of Australia.

“As steel mill margins remain low, and possibly weaken further, we expect this preference to become more prevalent.”

Market participants appeared unperturbed by China’s state planner vowing to step up monitoring of commodity prices and strengthen supervision of spot and futures markets.

Iron ore and steel prices in China hit record peaks last month, adding to inflation pressures that could prompt monetary policy tightening, but the central bank governor on Thursday said inflation was “basically under control”.

China’s commerce ministry said it was paying close attention to “the difficulties and challenges faced by foreign trade companies in raw material prices, exchange rate fluctuations and freight rates.”

Construction steel rebar on the Shanghai Futures Exchange SRBcv1 rose 2.7%, while hot-rolled coil SHHCcv1 jumped 2.3%. Stainless steel SHSScv1 advanced 1.5%.

Dalian coking coal DJMcv1 slipped 0.1%, while coke DCJcv1 shed 0.7%, surrendering early gains.
Source: Reuters (Reporting by Enrico Dela Cruz in Manila, additional reporting by Min Zhang in Beijing and Sonali Paul in Melbourne; editing by Uttaresh.V and Devika Syamnath)