DALIAN: Iron ore futures extended gains on Tuesday as concerns over tight market liquidity in China eased, with prices further bolstered by a positive demand outlook for the steelmaking ingredient in the world’s top steel producer.

The most-traded May iron ore on China’s Dalian Commodity Exchange jumped as much as 3.8% to 1,057 yuan ($163.90) a tonne, rising for a fourth straight session to its strongest level since Jan. 26.

March iron ore on the Singapore Exchange climbed 2.7% to $158.70 a tonne, its highest level since Jan. 27 and up for a second day.

“It appears to me the sharp drawdown in price in late January was due to liquidity concerns in China, where the 7-day interbank repo rate rose above 3% for four sessions,” said Howie Lee, an economist at OCBC Bank in Singapore.

“That has since been alleviated and iron ore prices, in tandem, have returned (to) around the breakeven price of $150/mt, suggesting the demand for iron ore remains intact,” he said.

Short-term money rates eased last week as signs of liquidity tension in the interbank money markets started to fade.

China’s central bank on Monday said its prudent monetary policy would be flexible, targeted and appropriate, with no sudden shifts, as it pledged to continue with interest rate reform.

Spot iron ore in China traded at $157.50 a tonne on Monday, according to SteelHome consultancy.

“In the absence of any premature (liquidity tightening) in China, we expect iron ore prices to sustain and continue eking out gains,” Lee said.

However, trading in spot and futures markets for iron ore and steel has thinned ahead of China’s week-long Spring Festival holiday beginning on Thursday.—Reuters