Iron ore futures in China slipped on December 5, but stayed near three-month peaks as steel prices largely sustained their strength amid production curbs in the world's top steel producer, Reuters reported.
The recent rapid gains in futures had helped boost spot iron ore prices to their highest level since September at more than $70/t, up more than 24% from end-October when they touched a four-month low.
"The sharp increase in iron ore prices over the last week, despite steel production cuts in northern China, suggest that there is still enough available spare steel capacity in the market to push iron ore demand higher," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
China has ordered 28 northern cities to curb sintering by up to half during the winter period from November through March to fight smog. Sintering, where iron ore is processed ahead of steelmaking, causes heavy pollution.
The most-traded iron ore contract for May delivery on the Dalian Commodity Exchange DCIOcv1 closed down 0.5% at 539.5 yuan/t ($82/t) on December 5 after rising as much as 2% to 553 yuan/t. The intraday high was just a tad off December 4's peak of 555 yuan/t which was its loftiest since September 13.
The most-active rebar on the Shanghai Futures Exchange SRBcv1 ended 0.4% lower at 4,025 yuan/t on the same day, but only after rallying to 4,085 yuan/t intraday, near December 4's three-month peak of 4,104 yuan/t.
Demand for medium to high-grade iron ore in China is also high, with most mills preferring them to boost productivity and limit emissions, traders said.
"Market conditions for medium-grade ores are also tight, while lower grade ores remain in significant oversupply," Dhar said.
Stockpiles of imported iron ore at China's major ports reached 141.67 million tonnes as of December 1, the highest since at least 2004.
The majority of those port stocks appear to be lower grade iron ore, traders and analysts say.
Iron ore for delivery to China's Qingdao port .IO62-CNO=MB jumped 3.7% to $72.68/t on December 4, the highest since September 14, according to Metal Bulletin.
ANZ analysts said environmental constraints in China have also put restrictions "on the movement of iron ore by truck from domestic operations".
"This has pushed up demand for high grade iron ore from the seaborne market," they said in a note.
(Writing by Jessie Jia Editing by Harry Huo)
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