Spot iron ore prices rose to almost 15-month highs, sustaining a rally that began last month and could extend amid a limited supply of spot cargoes, as top buyer China rebuilds stockpiles on hopes a mending economy will buoy steel demand.
Concern that an upcoming cyclone season could disrupt supply from top iron ore exporter Australia and firmer Chinese steel prices could stretch gains in iron ore prices which have already surged more than 33 per cent since early December.
Benchmark iron ore with 62 per cent iron content rose 0.4 per cent to $US153.90 a tonne on Monday, the highest since October 14, 2011, based on data from Steel Index.
Iron ore, the raw material used to make steel, has rebounded 77 per cent since hitting three-year lows below $US87 in September as Chinese appetite bounced back along with signs its economic growth is picking up.
"There's a lot of speculative buying going on and supply in the open market has been relatively short," said Jamie Pearce, head of iron ore broking at SSY Futures.
Slower domestic production of iron ore in China, especially in the northern regions due to winter, and limited flows of spot cargoes from Australia, Brazil and India have also helped push up prices, said Mr Pearce.
Australia's cyclone season could start as early as this week, with weather forecasters saying last week that a low-intensity storm off the western coast could intensify, potentially disrupting shipments of iron ore.
That could prolong a rally in prices as Chinese mills continue to replenish stockpiles at major ports that have fallen to less than 80 million tonnes from 90-100 million tonnes for the most part of 2012.
"I'm expecting prices to move further up," said a physical trader in Singapore, adding the benchmark 62 per cent iron ore could hit $US170 in the near term.
Steel prices help sustain rally
A slightly higher-grade cargo, a 70,000-tonne Brazilian 63.5 per cent material for delivery to China's Qingdao port in March, was sold at $US158 per tonne on Tuesday via the GlobalOre trading platform, traders said.
Miner Rio Tinto is selling 165,000 tonnes of 61.5 per cent grade Pilbara iron ore fines at a tender closing later in the day, traders said.
Rising Chinese steel prices are also helping sustain the rally in iron ore, pointing to a recovery in end-user demand.
The price of spot billet in China's key Tangshan area rose by another 60 yuan ($US10) per tonne on Tuesday, adding to a 50-yuan rise on Monday, the Singapore trader said.
In Shanghai, the most-traded rebar futures for May delivery reversed early losses to trade up 0.4 per cent at 4019 yuan per tonne by the midday break. It hit a six-month peak of 4047 yuan on Monday.
But the increase in steel prices is also fuelled by the rise in iron ore costs of steelmakers, prompting China's biggest listed steelmaker Baoshan Iron and Steel to lift prices for a third month in a row for February.
"China's new leadership has emphasized ongoing investment into transport and civil infrastructure. Combined with stabilising and improving real estate sales, end-demand prospects for steel in China are looking better than 3-6 months ago," Commonwealth Bank said in a note.
"While end-demand prospects are improving, the current surge in iron ore prices looks overdone. We suspect iron prices will either take a breather in the coming weeks or we'll need to see further increases in Chinese steel prices to sustain iron ore above $US150/tonne," the bank said.