SINGAPORE/SHANGHAI: Iron ore climbed to its priciest since July as Chinese mills continued to replenish inventories of the steel-making raw material, hoping demand will stay firm through 2013 as the world's second-largest economy mends.
Shanghai rebar futures rose for a seventh time in eight sessions on Wednesday, amid dwindling stocks of steel products in top consumer China that may prompt mills to ramp up output.
Benchmark iron ore with 62 percent iron content rose 1.2 percent to $124.90 a tonne on Tuesday, its loftiest since July 20, based on data from information provider Steel Index.
Lower stockpiles of iron ore, at both Chinese mills and the country's ports, have fuelled restocking, causing demand to spike for cargoes due in January and February.
Tuesday marked the sixth consecutive price increase for iron ore, which has gained more than 8 percent during the period. But traders say the rally could soon hit a wall.
Prices of iron ore stocks at Chinese ports rose about 20 yuan ($3) per tonne this week, which is "quite a big increase," said a trader in China's eastern province of Shandong.
"If iron ore prices continue to rise, steel mills will not be profitable, so I think iron ore prices will keep at around $120 in the near future," he said.
Some buyers are limiting purchases.
"Some steel mills, which already have ample stocks, are not buying large volume or chasing the rally," said an iron ore trader based in the northern city of Dalian.
"They are sticking to a minimum volume to maintain their cash flows, so I don't think there will be any big spike in iron ore prices."
Citing rising demand from China, top exporter Australia increased its forecast for iron ore output in fiscal 2013 to 529 million tonnes from 526 million previously.
Chinese steelmakers are hoping demand will stay firm early next year as the economy recovers from a seven-quarter slowdown.
Baoshan Iron & Steel, the country's biggest listed steelmaker, said on Tuesday it would raise prices for its main products for a second straight month in January, after keeping them mostly steady this year.
Chinese traders' inventories of five major steel products, including rebar and flat products, have dropped to less than 12 million tonnes by the end of November from a February peak of 19 million, traders and analysts say.
The most active rebar contract for May delivery on the Shanghai Futures Exchange was up 0.6 percent at 3,685 yuan a tonne by the midday break. It hit a session high of 3,700, just off Monday's seven-week peak of 3,707 yuan.
Center>Copyright Reuters, 2012
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