Iron Ore Makes Comeback as Prices Near Highs Seen in April Boom

(Bloomberg) -- Iron ore is making a comeback. Futures in China have reached their highest since the peaks hit during the speculative frenzy in April that drew global attention, and benchmark spot prices are on course for the fourth weekly gain in five.

On the Dalian Commodity Exchange, the September contract closed 1.4 percent higher at 472.5 yuan ($70.9) a metric ton. That’s 1.5 yuan short of the year’s highest close on April 21. Metal Bulletin Ltd. prices for 62 percent ore have gained every day this week.

Iron ore is rallying again after the boom-bust seen in April and May as steel prices climb, Chinese mills hit record daily rates of production and investors zero in on short-term supply disruptions in China, including floods. Iron ore prices may find support over the next 12 months as expanded credit in the world’s largest steel producer helps to underpin production, Sanford C. Bernstein & Co. said in a report dated July 27.

‘Driving Up’

“There have been a lot of events that are driving up people’s sentiment about a tighter steel market,” said Kevin Bai, a Beijing-based analyst at CRU Group, who added that iron ore was tracking steel. A flood last week disrupted deliveries across parts of northern China, some furnaces remain closed in the steel hub of Tangshan, and the government has ordered environmental checks on steelmakers in a number of provinces, according to Bai.

Ore with 62 percent content at Qingdao gained 3.5 percent to $60.70 a ton on Thursday, the highest since May 3, according to Metal Bulletin. During the run-up in April, the benchmark rallied 23 percent, peaking at more than $70 a ton, only to slump 24 percent in May. It’s 39 percent higher this year.

Steel rebar jumped 2.6 percent to 2,480 yuan a ton on the Shanghai Futures Exchange on Thursday, its highest since July 15. Most-active prices have advanced for six of the past seven days and are up 7.4 percent this week.

Goldman Sachs Group Inc. raised its three- and six-month iron ore forecasts in a report this week, saying steel prices were expected to remain volatile during a period of low inventories. Iron ore will trade at $50 a ton in three months and $40 in six months, up from $45 and $35 previously, the bank said.

Iron ore prices have climbed even as stockpiles at ports in China have expanded, and low-cost producers continue to add supply. The port holdings increased 0.2 percent to 105.65 million tons last week, the highest level since December 2014, according to Shanghai Steelhome Information Technology Co.

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net. To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Rebecca Keenan

With assistance from Martin Ritchie