Iron Ore Set to Gain in Fourth Quarter as Chinese Mills Restock

Iron ore will probably advance this quarter to levels last seen in July as steelmakers in China, the biggest buyer, rebuild inventories on speculation that the country’s pace of economic growth will pick up, said UBS AG.

Prices for ore delivered in China may climb to about $120 a ton to $125 a ton, commodities analyst Tom Price said today. On a free-on-board basis, the price may average $115 a ton from $105.60 a ton in the previous three-month period, he said.

The steel-making material delivered to the port of Tianjin rose 1.9 percent to $117.50 a dry ton yesterday, up 13 percent this month, according to data compiled by The Steel Index Ltd.

China’s growth cooled last quarter to 7.4 percent, from 7.6 percent in the period ended June. Growth will rebound to 7.7 percent in this quarter, the median of economists’ estimates in a Bloomberg survey shows. Premier Wen Jiabao on Oct. 17 said the economy has started to stabilize. Steelmakers raised daily output to a three-month high in September, according to monthly data collated by the National Bureau of Statistics.

China’s economy is still functioning, it still needs steel and it’s still going through a materials-intensive growth cycle,” Price said from Sydney. “I’m expecting a seasonal restocking of raw materials and a lift in steel production.”

Infrastructure Plans

Iron ore slumped 22 percent in the third quarter, plunging to a near three-year low of $86.70 on Sept. 5, on concern slowing growth in China will curb demand. It has rebounded 35 percent since Sept. 6, when the country announced plans to boost infrastructure spending. The government also raised planned rail-infrastructure investment this year to 516 billion yuan ($83 billion) on Oct. 10, from an earlier 496 billion yuan.

China boosted iron ore imports 4.1 percent to 65.01 million metric tons in September, the highest since January 2011, according to the customs bureau. Inventories of the ore held at Chinese ports have dropped 3.7 percent to 96.35 million tons as of Oct. 12, from a record 100.1 million tons set in July, according to data from Shanghai Steelhome Information.

Steel reinforcement bar futures fell as much as 2.1 percent to 3,653 yuan a ton on the Shanghai Futures Exchange today on speculation steelmakers are boosting production of the construction raw material. Daily steel output climbed 2 percent to 1.93 million tons a day last month from August, the highest level since June, according to the National Bureau of Statistics.

Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin port moisture can account for 8 percent to 10 percent of the ore’s weight.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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