Chinese iron ore futures edged lower on Wednesday but stayed near a record high amid firm demand for high-grade material that has helped push spot prices to a 30-month peak near $100 a tonne. A strong Chinese steel market has spurred a rally in iron ore, with mills seeking high-quality cargoes to improve productivity to chase rising prices.
"Demand for steel is quite good and mills are all making good profit at the moment so they have strong demand especially for high-grade iron ore," said an iron ore trader in Shanghai. "Mills want to produce as much steel as possible in order to catch up with the strong market."
The most-active iron ore on the Dalian Commodity Exchange closed down 0.7 percent at 722.50 yuan ($105) a tonne, after a two-day surge that lifted the contract to as high as 741.50 yuan on Tuesday, its strongest since launch in October 2013.
Rebar on the Shanghai Futures Exchange slipped 1.8 percent to 3,525 yuan per tonne. The construction steel product touched a three-year high of 3,630 yuan in the prior session. In a sign that traders continue to stock up on steel products ahead of spring when they expect demand from construction to pick up, inventories of rebar in China reached 8.3977 million tonnes on February 17, the most since April 2014, according to SteelHome consultancy.
On Tuesday, iron ore for delivery to China's Qingdao port rose 2.7 percent to $94.86 a tonne, according to Metal Bulletin. It was the highest level since August 2014 for the spot benchmark which has gained more than 20 percent this year, outpacing copper and nickel.
The sustained increase in spot rebar prices has "led to trading activity thinning, however, with a marked drop in confidence observed among buyers in the construction sector," Metal Bulletin said. The growth in China's home prices slowed for the fourth straight month as demand cooled further in the biggest cities, official data showed on Wednesday, signalling government curbs to defuse a bubble in the sector were starting to pay off. Stockpiles of imported iron ore at major Chinese ports reached 127.55 million tonnes, the highest since SteelHome tracked the data in 2004.
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