[www.ferro-alloys.com] Chinese iron ore futures surged 6 percent to the highest in more than two years on Tuesday amid rising steel prices, playing catch-up with the strength in coking coal.

Firm steel demand in the world’s top consumer and producer and higher raw material costs are supporting prices of the commodity. A shortage in coking coal has driven prices higher, but iron ore is gradually keeping up.

The most-traded January iron ore on the Dalian Commodity Exchange climbed 6 percent to hit the exchange-set ceiling of 471.50 yuan ($70) a tonne, its loftiest since Aug. 18, 2014. It is the biggest percentage gain since March 8.

The most-active January coking coal rose 4 percent to a contract high of 1,288 yuan a tonne. Coke soared as much as 5.9 percent to 1,662.50 yuan per tonne, the highest since Dec. 5, 2013.

“Overall market participants remain bullish about the outlook for coking coal as demand from steel mills remains healthy because steel inventory is low and steel mills are raising prices to pass on the raw material cost increase,” Argonaut Securities analyst Helen Lau said in a note.

The most-active rebar on the Shanghai Futures Exchange was up 3.2 percent at 2,549 yuan a tonne by 0304 GMT, after earlier touching a two-month peak of 2,568 yuan.

Low steel inventories are spurring Chinese mills to ramp up output, boosting demand for raw materials iron ore and coking coal.

Rebar inventories have declined this year versus past years. The supply is at 3.97 million tonnes as of Monday, according to data from industry consultancy Steelhome. That is down from the three-year average of 5.39 million tonnes. SH-TOT-RBARINV

But unlike coking coal which is expected to remain supported by a severe supply shortage in China even as the government moves to tackle overcapacity, the supply of iron ore may remain high.

Lau said while iron ore prices are expected to benefit from firmer steel demand in the short term, continuously rising output from top supplier Australia should increase supply to China in the current quarter.

Stockpiles of imported iron ore at China’s major ports stood at 105.8 million tonnes as of Oct. 21, the most since July, according to SteelHome.

Iron ore for delivery to China’s Tianjin port rose 0.5 percent to $58.70 a tonne on Monday, the strongest since Sept. 5, according to data from The Steel Index.

The spot iron ore benchmark has gained almost 37 percent this year. But spot Australian premium hard coking coal .PHCC-AUS=SI has surged 214 percent this year to $245.50 a tonne on Monday.

Source: Reuters (Reporting by Manolo Serapio Jr.; Editing by Christian Schmollinger)

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