SHANGHAI: Spot iron ore prices touched a five-month high of $130 a tonne as traders in China, the world's top buyer, booked more cargoes in anticipation that steel mills would need to start restocking the raw ingredient as soon as the next quarter.
Price offers for imported Australian cargoes in China, inclusive of freight, rose $3 to $129 to $130 a tonne on Monday from Friday, marking the biggest daily gain in two months, according to Beijing-based consultancy Umetal.
A slew of data, including manufacturing and rising power consumption last week, suggested that the world's second-largest economy was on the mend, lifting confidence among traders over demand for the raw material in the first quarter.
"Steel and iron ore traders have been pushing up prices after seeing better economic news," said Peter J. Cho, an iron ore derivatives broker with Icap in Singapore.
Some traders expect iron ore prices to top $135 a tonne this week, as low inventories could encourage traders to book more cargoes on bets for strong restocking by steel mills.
Chinese steel mills, which produce nearly half of the world's steel output, have cut inventories to a minimum as steel demand growth slows amid a cooling economy this year.
Iron ore inventories at Chinese main ports fell 1.96 million tonnes to 75.87 million tonnes by last Friday, marking the seventh consecutive week of decline, according to data from industry consultancy Mysteel.
However, some are unsure the recent gains can be sustained.
"Steel mills and end users have doubts about the sustainability of these levels of raw materials as their margins have narrowed and demand remains questionable through the winter season," Cho added.
Steel demand in China usually slows in winter as the cold weather interrupts construction acvitivites in the north, hitting demand for rebar.
The most active rebar contract for May delivery on the Shanghai Futures Exchange rose to 3,802 yuan ($610) a tonne on Monday, its highest since July 20, but eased to 3,792 yuan per tonne by midday break.
Benchmark index for 62-percent grade iron ore surged $2.9 to $129.3 a tonne on Friday, the biggest daily gain since October 17 and the highest level since July 17, 2012, according to data provider the Steel Index.
China will maintain steady economic policies next year, following pro-active fiscal policy and prudent monetary policy and deepening reforms to support long-term growth.
Center>Copyright Reuters, 2012
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