Spot iron ore prices in top market China rose on Wednesday, propped up by expectations Beijing will do what it needs to boost a slowing economy which should buoy demand for steel and its key raw material.
A rapid fall in iron ore prices this month also drew some buyers back into the market, with some Chinese steel mills replenishing low stockpiles following a bounce in spot steel prices.
Iron ore has dropped nearly 9 percent so far in May, far more than the 4 percent decline in steel prices, as Chinese buyers skipped cargoes due to weak steel demand.
Price offers for imported iron ore in China rose on Wednesday for the first time since early April, with Australian and Brazilian cargoes increasing as much as $2 per tonne, based on data from industry consultancy Umetal.
"It looks like the steel market is anticipating measures from the Chinese government that would increase demand, so some traders are more confident about the future," a Shanghai-based iron ore trader said.
"But I haven't seen a lot of deals so I'm not sure whether the market has reached bottom 100 percent. I don't think all mills are ready to pay at current prices yet."
Signs are growing that China is doing what is necessary to boost the world's No. 2 economy that probably slowed further in the second quarter after an already weak first three months.
Influential academics said China needs to lift investment to spur growth, but also cautioned against any aggressive fiscal stimulus, dampening market hopes the government might unleash a budget similar to the 4 trillion yuan ($630.12 billion) it spent during the 2008-09 financial crisis.
UPSIDE CAPPED
Benchmark iron ore with 62 percent iron content climbed 1.4 percent to $132.50 a tonne on Tuesday, the highest since May 17, according to the Steel Index.
Higher steel prices backed the recovery in iron ore.
The price of steel billet in China's key Tangshan area in Hebei province rose 20 yuan to 3,530 yuan per tonne on Tuesday and is likely to gain another 10-20 yuan on Wednesday based on the higher offers, another Shanghai trader said.
"I have also heard a lot of people saying prices for iron ore at ports stocks have improved by 10-20 yuan per tonne for all grades," he said.
But analysts do not expect another strong rally in iron ore prices for the rest of the year, with the spike to near $150 in April possibly the peak.
"Iron ore prices have come under pressure as seasonal demand improvement in China fades out, but prices can be sustained in a $120-$140 range through 2013," Ian Roper, commodities strategist at CLSA, told an industry conference in Singapore.
Roper said while slower demand growth from China would cap any upside, prices should find a floor near $120 given the high cost for some producers.
Top miner Vale has been briskly selling cargoes in the spot market this month, with some traders estimating its spot sales at around 3 million tonnes so far in May.
Vale is selling another cargo of around 176,000 tonnes of above 64-percent grade iron ore at a tender closing on Wednesday, traders said.
Source: Reuters