Iron ore jumped the most in almost four years and derivatives rebounded from a collapse as Chinese steel mills accelerated purchases following government plans to boost spending on subways, railroads and other projects.
The commodity at the Chinese port of Tianjin rose 6.7 percent to $95 a metric ton, the largest one-day gain since December 2008, according to data from The Steel Index Ltd. Swaps to bet on, or hedge, the price in October exceeded $100 a ton for the first time in three weeks, according to Clarkson Securities Ltd., a unit of the world’s largest shipbroker.
China said last week it will increase spending on railways and subways and also backed construction of 1,254 miles of roads, nine sewage-treatment plants, five port and warehouse projects, and two waterway improvements. Traders are speculating the developments will fuel demand for iron ore from the world’s largest importer of the steelmaking raw material, Alex Gray, chief executive officer of Clarkson Securities, said by phone.
“China has shown its hand,” Richard Lee, an iron ore and dry-bulk trader at Barclays Plc in London, said by e-mail today. “It intends to add a number of new projects and mills are now short, and therefore they are restocking.”
October swaps traded at between $106 a ton and $107 a ton at about 2:00 p.m. in London compared with $97 a ton on Sept. 7, according to Clarkson data. The last time they exceeded $100 was Aug. 20, according to Gray.
Shipping costs for the raw material, the largest dry-bulk cargo transported by sea, advanced for the first day in three. Rates for Capesize vessels jumped 1 percent to $3,485 a day, according to the Baltic Exchange in London, a publisher of freight rates on more than 50 maritime routes.
$20,000 a Day
China’s plans may lead to a resurgence in steelmaking, boosting charter rates for Capesize vessels as they translate into extra iron ore imports, Omar Nokta, a New York-based analyst at investment bank Dahlman Rose & Co., said today in a report. Capesize rates could increase “beyond $20,000 a day” as a result, he said.
Forward freight agreements for Capesizes in October rose 7.1 percent to $7,500 a day, Clarkson data show. The contracts have risen for three consecutive sessions.
Capesizes are the largest vessels in the Baltic Dry Index, a wider measure of costs to transport commodities by sea, which slid 0.4 percent to 666, according to the exchange. The gauge dropped 22 percent in August, the second straight monthly retreat.
Iron Ore Slump
Daily average returns for Panamaxes, the biggest ships to navigate the Panama Canal, declined 2.9 percent to $4,619 today, the exchange’s figures showed. Supramaxes that are about 25 percent smaller slipped 0.6 percent to $8,652. Handysizes, the smallest ships in the index, added 0.6 percent to $6,725, the exchange data showed.
Iron ore slumped this year as China drew on inventories instead of imports. The Tianjin price dropped as much as 35 percent since the end of June to $87 a ton, within 30 cents of the lowest level since October 2009, according to The Steel Index.
“Beyond the gloom of the collapse in iron ore spot prices, we’re seeing large volumes of physical trading,” Peter Norfolk, a London-based analyst at Freight Investor Services Ltd., a shipping and commodity derivatives broker, said by phone today. “It’s an indication of more buying, and this has seen prices rise.”