Chinese iron ore futures surged nearly 5% to their strongest level in more than five months on August 22 as falling stockpiles of the steelmaking raw material at the country's ports reflected firm demand.
The sustained rally in futures should push up bids for physical iron ore cargoes, as spot prices close in on $80/t.
The most-traded iron ore on the Dalian Commodity Exchange DCIOcv1 rose as far as 609.50 yuan/t ($92/t), its loftiest since March 16. It closed up 4.2% at 606 yuan/t.
Inventory of imported iron ore at China's major ports fell for a third consecutive week to 135.2 million tonnes on August 18, the lowest since mid-May.
Steel mills appeared to be happy to continue restocking, with iron ore stockpiles continuing to fall.
Daily drawdowns of iron ore from China's ports have surged to almost 3 million tonnes, the highest so far this quarter, which may point to continuous robust demand from mills while arrivals from Australia tumbled.
Maintenance of railway tracks and weather-related disruptions have led to some delays of iron ore shipments from Australia, the world's biggest supplier.
Iron ore prices have benefited from the rally in steel prices this year, although steel has far outpaced gains in the raw material.
The most-active rebar on the Shanghai Futures Exchange SRBcv1 touched a 4-1/2-year high of 4,016 yuan/t on August 10 and has gained 54% this year. The construction steel product closed 0.5% higher at 3,933 yuan/t on August 22.
Dalian iron ore futures have risen 37% this year. The rally in iron ore futures came even as the Dalian exchange limited the size of positions taken in some contracts by non-member firms as the bourse acted to tame speculative trading. The cap took effect on August 22.
(Writing by Jessie Jia Editing by Harry Huo)
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