Iron Ore Surges Above $70 as Chinese Steel Mills Boost Demand

China Is Poised to Ship Out More Aluminum
  • Price jumps 8.8% to highest since January 2015: Metal Bulletin
  • Chinese steel mills boosting demand on bigger profit margin

Iron ore powered above $70 a metric ton as Chinese steelmakers ramped up production to take advantage of bigger profit margins that have boosted demand.

Ore with 62 percent content delivered to Qingdao climbed 8.8 percent to $70.46 a dry metric ton on Thursday, the highest since January 2015, according to data on Metal Bulletin Ltd.’s website. It was the biggest daily increase since a record 19 percent jump in early March. The steel-making material has rebounded 84 percent since bottoming at $38.30 in December.

Iron ore’s gains in 2016 stand in sharp contrast to the previous three years, when a slowing Chinese economy hammered demand and prices, spurring a global glut. This year, Chinese policy makers have talked up growth and added stimulus, presiding over a revival in the property market that’s boosted the outlook for steel consumption. BHP Billiton Ltd., the world’s biggest mining company, said it expects iron ore to drop again as global production increases.

“The steel mills in China are now profiting from high steel prices,” said Michael Zhu, president of trader Millennia Resources Ltd. and former global sales director of top supplier Vale SA. “Fundamentally, the reality of Chinese steel production overcapacity and the oversupply of iron ore will not be changed in the short term.”

Chinese Demand

Mills in China, which make about half the world’s supply, have increased output to a record as property prices in bigger cities jumped and higher steel prices improved margins, reversing a squeeze from last year. Crude-steel production soared to 70.65 million tons in March, according to data last week.

“As we’ve seen activity seasonally take off, they needed to purchase more, fairly quickly, and that’s brought prices back up,” Mike Henry, BHP’s president of operations and minerals in Australia, said in an interview with Bloomberg Television on Thursday. “Once the mills are through the restocking cycle, we do expect that we’ll see prices come back down again.”

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