Prices of imported iron ore in China stabilized on Wednesday near levels last seen in May on firm offers, though trade was thin as some steelmakers had difficulty accessing credit.
Tight supplies from India, the world's third-largest iron ore exporter, had boosted demand for raw material from top miner Australia and was also encouraging suppliers from the Middle East and Africa to boost shipments to China, traders said.
Indian ore with 63.5 percent iron content was being offered at $173-$175 a tonne, cost and freight, for a third day on Wednesday, although Chinese consultancy Umetal said there were more quotes than deals recently.
Chinese steel mills usually find it difficult securing loans to fund iron ore purchases during the end of the year, and recent moves by the Chinese central bank to increase reserve requirements for banks has further limited the amount of money circulating in the market, Umetal said.
The People's Bank of China has focused on higher bank cash reserve requirements to tame inflation that is running at a 28-month high. Cash reserve ratios for banks have been lifted three times since November, with the latest announced last Friday.
Still, some Chinese mills continue to buy iron ore in anticipation of further price increases next year when the country's crude steel output is expected to hit another record level.
The Steel Index 62 percent iron ore benchmark .IO62-CNI=SI rose 60 cents to $167.50 a tonne, C&F, on Tuesday. The Metal Bulletin's own 62 percent gauge .IO62-CNO=MB gained 23 cents to $167.40, the highest for that index since May 13.
Prices for iron ore forward swaps continued to top the indices, indicating investors' bullish outlook.
The January contract, cleared by the Singapore Exchange, rose $1.62 to $172.12 a tonne and the February contract climbed $1.38 to $171.00.
TAKING ADVANTAGE
Demand from China is expected to stay strong through to Chinese New Year, a usual restocking period for steel mills, said Michael Gaylard, strategy director at Freight Investor Services in Shanghai.
"We're now in a period where nobody wants to receive cargo after Chinese New Year because no one knows what's going to happen so mills are making sure that they will get their ore in time and according to specifications and the Chinese are happy to pay a strong premium for that," said Gaylard.
And Chinese steelmakers are not keen on paying too high a premium for Indian ore because of delivery issues given limited supplies from there, he said.
India's southern Karnataka state has banned iron ore exports since July and the eastern port of Paradip has temporarily stopped shipping iron ore due to heavy rains.
This has increased demand for Australian ore in the spot market, which Gaylard estimates could hit as high as 150 million tonnes this year versus around 80 million tonnes in total exports for India.
Australia expects iron ore exports to rise to 410.8 million tonnes for the year ending June 2011 from 389.9 million tonnes in the previous year.