Chinese iron ore futures edged higher on Thursday as firmer steel prices helped the raw material rebound after a five-day slide, with coking coal prices also recovering.
Restrictions on steel production in northern Chinese cities during winter have dented demand for iron ore and dragged prices lower.
But Commonwealth Bank of Australia analyst Vivek Dhar expects iron ore prices to rise as the curbs, in place since mid-November, are lifted by mid-March.
“While we expect iron ore prices to trend higher this quarter, price volatility should be significant,” Dhar said in a note.
The most-traded iron ore contract for May delivery on the Dalian Commodity Exchange was up 1.4 percent at 537 yuan ($83) a tonne by 0226 GMT. The contract hit a 2-1/2-week low of 525.50 yuan on Wednesday.
Coking coal rose 0.7 percent to 1,283 yuan a tonne and coke climbed 1 percent to 1,971 yuan, both rebounding after a six-day tumble.
While China’s steel production restrictions have hit demand for iron ore, prices of the raw material have been largely resilient as they tracked gains in steel prices which have risen due to the output curbs.
With the curbs expected to be lifted by March, margins at steel mills could slip.
“Steel mill margins have declined steeply on the back of falling steel prices in China. With steel margins contracting, iron ore markets could face a sharp price correction in coming months,” Dhar said.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB fell 1.6 percent to $74.51 a tonne on Wednesday, its weakest levels since Dec. 29, according to Metal Bulletin.
“Seasonal demand for steel is normally low in winter so we see steel prices heading down despite the production cuts,” said a trader in Shanghai, referring to the recent decline in Chinese steel prices.
Shanghai rebar has lost more than 6 percent since hitting a three-month high of 4,104 yuan on Dec. 4.
On Tuesday, the most-active rebar on the Shanghai Futures Exchange was up 0.7 percent at 3,843 yuan a tonne.