Iron ore advanced to the highest level in almost five months as declining port stockpiles in China and speculation that local production is dropping boosted the outlook.
Ore with 62 percent content delivered to Qingdao increased 0.3 percent to $65.61 a dry metric ton on Thursday, according to Metal Bulletin Ltd. That’s the highest price since Jan. 23. Futures in Dalian rose to the highest in almost three months.
Iron ore rebounded from a decade-low in early April to post the biggest monthly gain in almost two years in May as China’s port stockpiles fell after imports missed expectations. The global market is set to tighten in the second half as China imports more and produces less, Vale SA Chief Executive Officer Murilo Ferreira said Wednesday. Vale, BHP Billiton Ltd. and Rio Tinto Group are raising low-cost output to boost market share.
“The recent rise in the spot price is associated with a decline in port inventories and that’s pretty much telling you that imports are soft, so it’s a supply story,” said Justin Smirk, a senior economist at Westpac Banking Corp. in Sydney. “Falling inventories, falling imports, falling domestic production -- that’s a good reason why prices are up.”
Iron ore gained 28 percent this quarter, set for the first such advance since the final three months of 2013. Its performance has beaten all constituents in the Bloomberg Commodity Index, which added 3.9 percent in the period led by West Texas Intermediate crude oil, gasoline and Brent. World stocks rose 1.9 percent, while the dollar fell 1.9 percent.
Futures on the Dalian Commodity Exchange increased 1 percent to 455 yuan ($73) a metric ton, the highest since March 16, extending a 3.9 percent advance on June 10. Prices have risen 23 percent in the past two months.
Holdings at ports fell 13 percent to 85.4 million tons last month, and extended the decline in the first week of June to 83.8 million tons, according to Shanghai Steelhome Information Technology Co. That’s the lowest since November 2013.
Iron ore imports by China contracted in May from April and from the same month a year earlier, according to customs data. Cargoes fell 12 percent from the previous month to 70.87 million tons, and were 8.4 percent below a year earlier, the data showed. That’s the lowest monthly total since February.
Goldman Sachs Group Inc. is among banks predicting that the rally won’t last as supplies are set to expand further and more higher-cost mines need to close to balance the market. The advance is living on borrowed time, Christian Lelong and Amber Cai said in a note Monday, targeting a drop back below $50.
“There is more volume coming undoubtedly,” said Westpac’s Smirk. “We will see a lift in imports into China and we’ll see a lift in exports out of Australia and that will help drive prices back down again.”