Iron-ore futures prices rose on Wednesday to their highest in more than two weeks, helped by firm demand in top consumer China and falling domestic supply.
The most-traded January iron ore contract on China’s Dalian Commodity Exchange (DCE) DCIOcv1 closed daytime trade 0.76% higher at 791.5 yuan ($111.32) a metric ton, after touching its highest since November 3 at 797 yuan earlier in the session.
The benchmark December iron-ore on the Singapore Exchange added 0.14% to $104.55 a ton, as of 07:10 GMT, after hitting its highest since November 4 at $104.95 earlier.
Chinese steel mills have been adopting a low-inventory strategy for raw materials in the past three years as margins have been squeezed by falling steel prices amid a protracted property downturn, said analysts and traders.
But that means mills need to return to the spot market to restock cargoes more frequently, thus improving spot liquidity, which to some extent acted as a buffer amid a price slump.
“Mills have been flexibly adjusting their production strategy, switching to make more flat steel when it’s more profitable to do so,” said Ge Xin, deputy director at consultancy Lange Steel.
“As a result, hot metal output still hovered at relatively high level.”
Hot metal, a blast furnace product, is used to gauge iron-ore demand while flat steel is typically used in the manufacturing sector.
Lower domestic supply has also been supporting ore prices.
China’s domestically produced run-of-mine, which is raw ore to be processed into concentrate for pellet, slid by 2.9% from the year before to 84.03 million tons in October, official data showed on Tuesday.
However, analysts cautioned that further upside potential for ore prices might be limited, citing high portside inventories and forecasts of growing supply of seaborne cargoes.
