May 17, 2019 / 7:34 AM / a year ago

Dalian iron ore hits record high on expectation of firm demand

BEIJING (Reuters) - China’s iron ore futures rose nearly 6% to a record high since contracts were launched in 2010, driven by firm demand outlook at steel mills.

FILE PHOTO: A labourer works at a cold-rolling mill on the outskirts of Wuhan, capital of central China's Hubei province August 22, 2006. REUTERS/Alfred Cheng Jin/File Photo

The most active iron ore contract for September delivery on the Dalian Commodity Exchange climbed as much as 5.8% to 710 yuan ($102.87) per tonne, its peak level since July 2010.

“Investors expect firm demand for steelmaking raw materials despite high prices as mills would still ramp up output amid strong profitability,” a Shanghai-based trader said.

Average profit margins of rebar-making have fallen to around 600 yuan per tonne from around 840 yuan a tonne in mid-April.

Utilization rates at steel mills across China ratcheted up 0.28 percentage points to 69.06% as of May 17 from previous week, according to data compiled by Mysteel consultancy, despite tightened anti-pollution measures in China’s top steelmaking city Tangshan.

Tangshan government has ordered steel mills to step up production curbs to an average of 30% in May from around 20% in April.

Strong iron ore prices were also supported by tight supply concerns in the wake of a mine accident, which could lead to a wide range of safety inspections across the country.

An iron ore mine in China’s northeast region was flooded early morning on Friday, leaving nine people trapped underground. The mine, which started operations in February, has an annual mining capacity of 1.6 million tonnes.

Meanwhile, Brazilian iron ore miner Vale SA told prosecutors in the state of Minas Gerais that a dam is at risk of rupturing at its Gongo Soco mine, about 40 miles from where its Brumadinho dam collapsed, killing more than 230 people.

However, analysts and traders warned that restocking process at steel mills may slow down once steel demand begins to weaken.

Inventory of steel products at traders continued to fall this week to 11.62 million tonnes, with rebar down 350,300 tonnes and hot-rolled coil down 82,700 tonnes, according to Mysteel data.

Benchmark Shanghai rebar prices rose 1.3% to 3,771 yuan a tonne when market closed at 0700 GMT, while hot-rolled coil advanced 1.1% to 3,682 yuan per tonne.

Other steel-making raw ingredients also went up on Friday, with coking coal gaining 1.8% and coke adding 1%.

Reporting by Muyu Xu and Shivani Singh; Editing by James Emmanuel and Shreejay Sinha

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