Iron ore at 3-week high, but momentum may stall as holiday nears

SINGAPORE: Spot iron ore prices rose to three-week highs as traders and Chinese steel mills stocked up ahead of next week's Lunar New Year holiday, although the upward momentum may lose steam as market activity winds down.

Price offers for imported iron ore cargoes in China increased by a dollar per tonne on Tuesday, but deals have been few.

"There aren't many buyers in the market right now, most of them are already in a holiday mood," a Shanghai-based physical iron ore trader said. "But we expect a strong opening for the market after the holiday."

Hopes that steel demand in China, the world's biggest consumer and producer, will perk up after the Feb. 11-15 Spring Festival pushed up steel prices to nine-month highs on Monday, supporting appetite from producers for raw material iron ore.

Benchmark iron ore with 62 percent iron content rose 0.7 percent to $154.20 a tonne on Monday, according to data provider Steel Index.

That was the highest price for iron ore since Jan. 14, and just about $4 away from its 2013 peak, although traders and analysts were unsure whether it can match or top that level as early as this week.

"With Chinese New Year approaching, last week's panic buying of ore is beginning to recede, although we believe that both iron ore and steel warehouse stocks in China will require further replenishing ahead of the March construction season," Standard Bank said in a note.

Apart from the seasonal boost, the Chinese economy is also regaining momentum after seven quarters of slower growth as evidenced by brisk manufacturing data for January, which bodes well for steel demand.

But Shanghai steel futures eased on Tuesday after hitting nine-month highs on Monday, while spot steel prices in China were mostly steady.

The most actively traded May rebar contract on the Shanghai Futures Exchange was down 0.4 percent at 4,183 yuan ($670) a tonne by the midday break. Rebar, used in construction, hit an intraday high of 4,235 yuan on Monday, its loftiest since May 2, 2012.

The iron ore swaps market was similarly subdued, with early deals pointing to lower prices after recent steep gains.

The Singapore Exchange-cleared February contract traded at $154 a tonne, after settling at $155.50 on Monday, brokers said. The March contract slipped to $149 from $153.33, they said.

Market participants seem to be taking stock of the situation after recent gains and ahead of the long holiday in China, said Jamie Pearce, head of iron ore broking at SSY Futures.

"Physical market has been fairly quiet. I think some traders are holding out to post-Chinese New Year to make the next move," Pearce said.

Volume cleared by the SGX, the world's top clearer of iron ore swaps, fell to 757,500 tonnes on Monday from 1.575 million tonnes on Friday, which was the highest single-day volume since early September, based on data from the exchange's website.