Chinese iron ore demand spike surprises market

In its weekly market update, US-based Commodore Research & Consultancy speculated that there could be a link between the jump in Chinese iron ore purchases in the first few days of June and a lull at the end of May.

Analyst Jeffrey Landsberg said some transactions may have been delayed late last month to affect quarterly contract prices.

Mr Landsberg said prices of high quality ore fell 24% from US$164 a tonne FOB to US$125 in less than a month.

However, last week's increase was an encouraging sign of "moderate strength" in China's steel market.

"We anticipated some increase in overall dry bulk cargo demand - but the dramatic rise in iron ore fixtures exceeded all expectations," Mr Landsberg said.

"With spot iron ore prices still relatively low and stockpiles of ore at Chinese ports approaching record highs, it is at first surprising that Chinese buyers would suddenly purchase a relatively robust amount of Australian ore to be delivered in a short period of time.

"With ore contract prices for the third quarter determined by taking an average of spot prices from March to May, it is possible that Chinese iron ore buyers were keen to have spot ore prices decrease in order to have quarterly contract prices set at a more manageable level.

"There is a real threat the Chinese steel production will come under pressure in the near-term but concern over a collapse in steel demand is most likely overblown."