The most-traded iron ore contract on the Dalian Commodity Exchange, for September delivery, gained as much as 5.5% to 1,256 yuan ($195.26) per tonne before closing up 4.3% at 1,243 yuan.
“Steel consumption is still at seasonal peak in the short term… mills are actively producing driven by high profits, which is supporting raw materials,” analysts with Huatai Futures wrote in a note.
“As China’s steel production still continues to expand, its steel margins remain elevated and seaborne iron ore supply remains constrained”
Morgan Stanley
China’s steel output hit a record high despite the government’s pledge to curb annual production to reduce pollution and increase costs from raw materials.
Crude steel output in April rose to 97.9 million tonnes to hit monthly and daily run-rate records.
Related Read: Global iron ore production growth to accelerate, driven by Brazil— report
Data tracked by Mysteel consultancy showed that iron ore shipments from Australia and Brazil fell by 2.24 million tonnes to 22.58 million tonnes last week.
Mysteel expects single-digit growth for apparent steel consumption in China to persist past 2021 as a result of the nation’s medium-term urbanization targets, according to a note from UBS Group AG, citing a call with Henry Liu, head of iron ore analytics at the pricing and market intelligence service.
“As China’s steel production still continues to expand, its steel margins remain elevated and seaborne iron ore supply remains constrained, we think that the iron ore price can stay around the current level through 2Q, but is likely to remain highly volatile,” analysts at Morgan Stanley wrote in a note.
Other risks to the rally may be looming as supply from Brazil could pick up in the coming months. Brazilian producers are looking to generate cash and make new investments to supply a tight market underpinned by robust China-led demand, according to the president of the country’s mining industry group Ibram.
(With files from Bloomberg and Reuters)
