SINGAPORE: China steel futures hit their highest in more than six months on Monday, backed by a revival in demand in the world's top steel consumer that has fuelled a buying spree for raw material iron ore and lifted prices to levels last seen in October 2011.
Baoshan Iron and Steel, China's biggest listed steelmaker, said it will raise prices for key products for a third straight month in February, reflecting rising raw material costs and a better outlook for steel demand.
China's recovering economy is largely behind the optimism. Data last week showed manufacturing activity in the world's No. 2 economy was at its strongest since May 2011.
"Many are expecting improved demand for steel in the first quarter so most mills continue to produce at full scale and there has been somewhat a shortage of spot iron ore cargoes in the market," said a Shanghai-based iron ore trader.
Most iron ore cargoes sold via spot tenders had been snapped up by big traders anticipating a further run-up in prices, spurring caution among mills wary of rising raw material cost.
The most-traded rebar contract for May delivery on the Shanghai Futures Exchange touched a session high of 4,047 yuan ($650) a tonne, its loftiest since July 6. By the midday break, it was up 0.6 percent at 4,013 yuan.
Prices of rebar, used in construction, have rebounded by over a quarter from September lows. But iron ore has far outperformed steel, surging 77 percent since hitting three-year troughs in September.
Benchmark iron ore with 62 percent iron content jumped 2.3 percent to $153.30 a tonne on Friday, the highest since mid-October 2011, according to Steel Index.
Rising prices of iron ore, particularly those from top supplier Australia, are prompting some Chinese steelmakers to look for cheaper cargoes elsewhere.
"We are getting more enquiries from clients asking whether we have cheaper iron ore from other sources which they didn't consider in the past," said another trader from Shanghai.
"They're looking for cargoes from Malaysia, Indonesia and some South American countries like Mexico and Chile because they're trying to reduce their cost.”
Center>Copyright Reuters, 2013