Iron ore at 15-month peak near $160; doubts on gains sustaining

Wed Jan 9, 2013 11:12am IST

* Iron ore has gained over 37 pct since early December
    * Limited spot supply, China restocking behind surge
    * Shanghai rebar slips after hitting 6-month peak

    By Manolo Serapio Jr
    SINGAPORE, Jan 9 (Reuters) - Iron ore jumped to its highest
since October 2011, stretching a rally that has lifted prices by
more than a third since December as top importer China
replenished stockpiles and supply in the spot market remained
limited.
    Chinese steelmakers have been restocking iron ore amid
optimism demand will rebound as economic activity gathers pace
this year, helping iron ore prices recover more than 80 percent
from three-year lows hit in September.
    Demand for spot iron ore cargoes has outpaced supply, with
flows from top exporters Australia and Brazil restrained by
weather concerns and China's own domestic output curbed by the
country's coldest winter in 28 years.
    Sellers of imported iron ore to China upped price offers by
another $2 per tonne on Wednesday, traders said, after the
benchmark 62 percent grade iron ore .IO62-CNI=SI climbed 3
percent to $158.50 a tonne on Tuesday, according to data
provider Steel Index.
    Iron ore, the raw material used to make steel, has now risen
83 percent since falling to below $87 in September.
    "Spot supply is tight and mills continue to restock. More
traders are buying cargoes at tenders because they expect prices
to rise further," said a physical iron ore trader in Shanghai.
    Miner Rio Tinto sold 165,000 tonnes of 61 percent
grade Australian Pilbara iron ore fines at $159.88 a tonne at a
tender on Tuesday, up sharply from $151 previously, the trader
said.
    The tender result pushed up spot prices, with other cargoes
for delivery to China up to April also sold at higher prices,
traders said.
    Rio Tinto is holding another tender on Wednesday to sell
75,000 tonnes of 64.5 percent grade South African iron ore
concentrate and traders expect the cargo to be sold higher than
Monday's $160.11 per tonne for the same grade.
    
    WEATHER IMPACT
    Rains in Brazil have disrupted iron ore shipments to China
since December and there is concern Australia's upcoming cyclone
season may also restrict shipments from the world's top supplier
of the raw material.
    "Prices have gone up very fast and I think it's mostly
sentiment-driven. Once these weather concerns in Australia and
Brazil go away, and China turns warmer in February, we will see
iron ore fall," said a Singapore-based trader.
    Some Chinese mills have become cautious given the rapid rise
in iron ore prices, curbing volumes in trading of ore port
stocks whose prices have tracked rises in fresh seaborne
cargoes, the Shanghai trader said.
    A sustained decline in Chinese steel prices could also spur
a correction in iron ore, traders said.
    The most active rebar contract for May delivery on the
Shanghai Futures Exchange eased 0.6 percent to 3,988
yuan ($640) a tonne by the midday break, after hitting a
six-month high of 4,047 yuan on Monday.
        
  Shanghai rebar futures and iron ore indexes at 0454 GMT
                                                                                                  
  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3988    -22.00        -0.55
                                                 
  THE STEEL INDEX 62 PCT INDEX     158.5     +4.60        +2.99
  METAL BULLETIN INDEX            159.51     +4.06        +2.61
                                                                                                  
  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
        
($1 = 6.2241 Chinese yuan)

 (Editing by Muralikumar Anantharaman)
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