Hopes of China rebound boosts iron ore price

HOPES for a rebound in China's steel production has helped to push the spot price for iron ore to eight month highs, as optimism over the growth outlook for China's manufacturing sector spread.

HOPES for a rebound in China's steel production has helped to push the spot price for iron ore to eight month highs, as optimism over the growth outlook for China's manufacturing sector spread.

Australian iron ore producers were among the top gainers on the sharemarket on Wednesday, with Mount Gibson rising 7.2 per cent, Atlas Iron 5.9 per cent and Fortescue Metals 5.8 per cent.

The spot price for iron ore hit $US143.50 a tonne in Asian trading this week, extending its gains from about $US115, touched in early December. The price is now well clear of the lows of below $US90 a tonne struck in September.

The iron ore price has been pushed steadily higher this week in the wake of the release of the latest HSBC purchasing managers's index for China, which stood at 51.5 in December, its highest since last May, and up from 50.5 in November. The rise in the index signals further strength in China's manufacturing sector, HSBC said, with output expanding at the quickest rate since March 2011.

More importantly, the data reflected a rise in overall orders, despite a decline in export orders, triggering optimism that the Chinese economy is gradually weaning itself off over-reliance on exports for growth.

The data marks a continued rebound for the Chinese economy in the final quarter of last year, after a prolonged period of sub-par growth over the previous 18 months.

The extended rebound of the iron ore price has prompted Fortescue to announce the resumption of work on its Kings iron ore development in the Pilbara, which had been stalled amid concerns about the company's ability to finance its expansion program.

"The consensus view is for an iron ore price of $US120 a tonne for 2013, which signals some pessimism on the outlook," one analyst said.

The iron ore price has also been buoyed by Chinese steel mills restocking before the Chinese New Year on February 10, which will dampen demand in the first half of February, with analysts also warning the gains may be a knee-jerk reaction to the rapid pick-up in economic activity off a low base.

"Investors are looking for steel production and iron ore demand prospects post the Chinese New Year and also the March National Peoples' Congress," one analyst said, with a focus also on the efforts by China's central bank to curb shadow banking activities which may further slow growth towards the middle of the year.

China's outgoing President, Hu Jintao, in an address on December 31, said the country would "step up efforts to promote strong, sustainable and balanced growth in the world economy".

- ArcelorMittal is to sell a 15 per cent take in Canadian iron ore mine Labrador Canada to a consortium that includes South Korean steel maker POSCO and Taiwan's China Steel Corp for $US1.1 billion. The mine produces 15 million tonnes of iron ore annually, along with 8 million tonnes of iron ore pellets.

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