May 28, 2019 / 8:14 AM / 22 days ago

UPDATE 1-China's iron ore scales new peak, but rally loses steam

* Benchmark iron ore contract gains as much as 2.8%

* Iron ore stocks at Chinese ports at lowest in 2 years

* 62% iron ore grade for delivery to China at 5-year high (Updates with closing prices, graphic)

By Enrico Dela Cruz

MANILA, May 28 (Reuters) - China’s iron ore jumped to a fresh record on Tuesday, but the rally fizzled out, as bets continued that there could be a further squeeze in supply of the steelmaking feedstock from Brazil, while domestic demand remained brisk.

Iron ore inventory at Chinese ports dived to 127.8 million tonnes, as of May 24, the lowest since early 2017, SteelHome consultancy data showed SH-TOT-IRONINV amid limited seaborne arrivals and continued purchases by traders and mills.

The most-traded September 2019 iron ore contract on the Dalian Commodity Exchange ended the session up 0.4% at 756.5 yuan ($109.52) a tonne, after gaining as much as 2.8% in early trade to 774.5 yuan. That was benchmark’s highest since the 2013 launch of China’s futures trading for one of its top imports.

Spot iron ore with 62% fines for delivery to China SH-CCN-IRNOR62 climbed to a five-year peak at $106.50 a tonne on Monday, from Friday’s $103.50 level, according to SteelHome consultancy.

“The iron ore rally is primarily due to the tight supply-demand balance that was further catalyzed by the increased risk of a dam breach at Gongo Soco,” said Richard Lu, senior analyst at CRU consultancy in Beijing.

Miner Vale recently told prosecutors in Brazil’s state of Minas Gerais that a dam was at risk of rupturing at its Gongo Soco mine, about 40 miles from where its Brumadinho dam collapsed in January, killing more than 230 people.

The Brumadinho dam disaster and subsequent mine and dam closures in Brazil had prompted Vale, the world’s biggest iron ore miner, to slash its iron ore sales estimate for this year, pushing prices to record highs.

Hopes that Vale could increase its shipments dimmed after a court recently ordered it to halt operations at its Brucutu iron ore mining complex, reversing a lower court decision that had allowed the mines activities to resume.

“Chinese steel mills are still running their blast furnaces intensively, so demand for iron ore is robust,” Lu said.

Crude steel output from China, the world’s top producer and consumer of the alloy, rose to 85.0 million tonnes in April, up 12.7% from a year ago.

Recent iron ore restocking by Chinese buyers had led to a substantial decline in stocks at Chinese ports, pushing up seaborne prices to over $100 a tonne, Lu said.

A weak renminbi versus the U.S. dollar added to the upward momentum in domestic prices of iron ore, he said.

Prices of other steelmaking raw materials fell further, however, with coking coal down 1.5% at 1,383 yuan a tonne. Coke slid 3.1% to 2,237 yuan.

With steel output in China still rising, coke production had also accelerated, analysts said.

Steel futures extended their declines amid concerns about oversupply, with the most-active rebar contract on the Shanghai Futures Exchange down 0.8% at 3,845 yuan a tonne. Hot-rolled coil lost 1.1% to 3,669 yuan.

($1 = 6.9075 Chinese yuan)

Reporting by Enrico dela Cruz, Editing by Sherry Jacob-Phillips

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