Spot iron ore prices touched near nine-month highs and offers remained strong on Tuesday, supported by firm Chinese buying and supply concerns in key producers Brazil and India.
There is market talk that India may lift export duty on iron ore to 20 percent from 5-10 percent currently, traders said, further tightening supply from the world's third-largest exporter where a key state Karnataka has already banned shipments since July.
India last raised the export tax on iron ore lumps in April 2010 to 15 percent from 10 percent, after slapping a 5 percent export duty on iron ore fines in December 2009.
Limited supplies from No. 2 exporter Brazil due to massive rains, Chinese stockpiling ahead of the Lunar New Year in early February and concerns over Indian exports could lift spot iron ore prices to $200 a tonne, a level last seen in 2008, traders said.
We think it's going to stay strong and perhaps even touch $200 for 63.5/63 (grade) after Chinese New Year," said an iron ore trader in Shanghai.
"We are quite optimistic about the market at the moment," she said, adding she heard a deal was done for 63.5/63 grade at as high as $189 a tonne.
Offers for Indian ore with 63.5 percent iron content climbed to $186-$188 a tonne, including freight, on Tuesday, from $185-$187 the previous day, according to Chinese consultancy Mysteel.
The three major iron ore indexes, based on Chinese spot prices, on Monday rose to or stayed at their highest since late April 2010.
The Steel Index 62 percent benchmark .IO62-CNI=SI jumped 1.4 percent to $180.80 a tonne, and Metal Bulletin's 62 percent gauge .IO62-CNO=MB rose 1.2 percent to $176.75.
The Platts 62 percent iron ore index IODBZ00-PLT was steady at $182.50.
RECORD RIO OUTPUT
The rally may be far from losing steam, as prices for forward swaps <0#SGXIOS:> surged on Monday . The Singapore Exchange-cleared February contract jumped 4 percent to $181.37 a tonne, and March rose 3.4 percent to $177.75.
Strong iron ore prices are encouraging global miners to boost output. Rio Tinto , the world's second-largest producer, said iron ore output rose 6 percent to a record level in the fourth quarter.
For a table on Rio's quarterly commodity output, click:
Barring any major cyclones to hit Australia's Pilbara iron ore belt, Rio's iron ore production is likely to remain strong, James Wilson, analyst at Royal Bank of Scotland.
"The cyclones are an annual event. I don't think Rio had any problems last year and they try as much as possible to limit any loss of production," Wilson added.
"At the moment there's been nothing seriously affecting their iron ore output, but it remains to be seen what happens this season."
Market players are also eyeing a potential Indian court ruling on the Karnataka ban later this month which could help determine whether another Indian state would go ahead with its own ban on iron ore exports.
Orissa, the top iron ore producer in India, is looking at halting iron ore exports to increase availability of the raw material for local steelmakers.
"Whether Orissa will go ahead with the ban very much depends on what happens in Karnataka. If Karnataka removes the ban soon then Orissa will have no argument to push the ban," said the Shanghai-based trader