Iron ore prices bounce back

Prices of iron ore, a major material used for steel production, hit a six-month high last week on expectations of economic recovery in the world's second largest economy, and experts said Sunday that the steel price in China will increase in the first half of 2013.

The benchmark price of iron ore with 62 percent iron content delivered in China surged to $139.75 a ton Wednesday to reach a 6-month high since June 22, bouncing back from a three-year low of $88 a ton in early September, according to Platts, an energy and metals pricing agency.

The rising prices of iron ore are a result of optimism for the world economy, Wang Guoqing, a researcher at Beijing Lange Steel Information Research Center, told the Global Times Sunday.

Besides economy boosting policies in the US and Europe, China's central government has approved scores of infrastructure projects since September, which shored up confidence in China's steel market, Wang said.

"China emphasized the importance of urbanization as the driving force for its growth during the next decade, which would spur construction of houses and infrastructure, leading to higher demand for steel," Wang noted.

Chinese steelmakers are restocking after running down their inventories over the past few months, which also drove iron ore prices high, she said.

China's port stocks of iron ore declined to 80.3 million tons on December 24 from 102.5 million tons on September 3, data from Xinhua News Agency showed.

The monopoly of iron ore resources by major overseas firms was another reason for surging prices, Qu Xiuli, deputy secretary-general of the China Iron and Steel Association, told the Global Times Sunday.

Iron ore miners and traders, who expect a possible demand increase for steel in China, have recently raised iron ore prices, Qu said. China currently relies on imports to meet 60 percent of its iron ore demand.

Australia-based Fortescue Metals Group, the world's fourth largest iron ore miner by production, announced Thursday it would resume its expansion plan to produce 155 million tons of iron ore by the end of next year, because of "recent improvement in iron ore prices and market outlook." The group halted the plan in September due to bad market conditions.

Steel demand will keep relatively stable in January 2013 because winter is the off season for infrastructure construction, but as construction begins in March, there will be a surging demand for steel, which will lead to increasing steel prices, Wang said.

However, the situation for steel mills may become even worse than 2012 in the second half of 2013, Qu warned, noting that steel producers may expand production because of optimism for the future, but demand would not increase correspondingly, causing serious oversupply.

Moreover, rising steel prices would not necessarily mean higher profits for steel mills, because they may have to spend even more money to buy materials from monopolized iron ore firms, Qu said.

Wang from Lange said China's steel firms need to own more iron ore mines to gain more control over prices.