Iron ore spot markets climb as demand for steel grows in China

Iron ore spot markets bounced back on Thursday. However, it is expected that the upward trend may start falling on Friday, as Dalian futures suffered a heavy slide overnight.

As noted by Metal Bulletin, the spot price for benchmark 62 percent fines enhanced by 1.2 percent to $92.36 a tonne. In contrast, it had sustained a downfall in the last two sessions. Higher and lower grade ores enjoyed an increase in the session.

In March, the demand of steel has increased in China. This comes on the heels of construction activities that have restarted amid warmer weather as steels mills in a few northern regions had to restrict output to reduce smog.

"Rebar is the safest commodity futures for now as rebar supplies have been hit hard by the government's environmental crackdown, and now demand is increasing," Li Wenjing, analyst with Industrial Futures in Shanghai, said, speaking with Reuters. The gains, she added, may cool down after production cuts are made in Tangshan.

This year, the benchmark iron ore spot price saw an escalation of 17.1 percent. The development comes in the wake of the all-time low of $38.30 a tonne seen in December 2015, effectively extending the gain to as much as 141 percent. It is now at less than 3 percent below the $94.86 a tonne mark witnessed on Feb. 21.

The gains seen over the past year are prompting the higher-cost, lower-grade Chinese iron ore mines to begin production once again. “Quite a few Chinese iron ore miners are planning to come back and reopen their mines,” Pan Guocheng, head of medium-sized miner China Hanking Holdings, said, speaking with Reuters.

Since 2013, lower prices had caused over a third of China’s yearly iron ore production capacity to be taken offline. If the prices stay over $80, almost half of the mines that were taken offline may restart production – causing a reversal of the trend. He said Hanking could open one of three mines that were shuttered. "If the price will stay high," Guocheng said, "we are going to seriously re-evaluate if that mine should be reopened."

The May 2017 iron ore future on the Dalian Commodities Exchange saw a downfall of 4.15 percent to 669.5 yuan (AU$128.6) – reaching a record low level since February. In contrast, it traded at 741.5 yuan (AU$142.4) less than two weeks ago. Rebar and coal futures also saw substantial declines, an indication that the downward trend seen in iron ore was largely attributable to steel-linked factors.