Business

Iron ore spot prices approach 5-year high

Westpac has revised upward its forecasts for iron ore prices.

Iron ore futures in China have ticked higher and are on track for their third consecutive weekly gain as spot prices hover near five-year highs.

Increased demand from Chinese steelmakers and declining supplies from producers overseas supported the rise in price on Friday.

Steel prices edged down but construction-used rebar is set to mark its biggest weekly jump since the first week of December 2018.

The most traded September 2019 iron ore on the Dalian Commodity Exchange was up 0.5 per cent at 652 yuan ($US96.99) a tonne by 1213 AEST on Friday, after rising as much as 2.2 per cent in early trade.

It has risen 3.7 per cent so far this week.

Steel mills' strong appetite for iron ore at a time the market is spooked by supply disruptions lifted China's benchmark contract this week to the highest since 2013, when the world's biggest steelmaker launched its futures market for the commodity.

The main price booster though is the decline in shipments of the steelmaking feedstock to China that have been flagged by top suppliers in Brazil and Australia, with some analysts now expecting a deficit this year.

The global iron ore market is facing a shortfall of around 34 million tonnes this year, according to Westpac, in a deficit revealed after a fatal tailings dam collapse in January curtailed the operations of the world's top iron ore miner Vale SA in Brazil.

Adding to concerns about the shortfall, tropical cyclone Veronica hit the operations of major iron ore producers in Australia in late March resulting in them lowering their 2019 shipment estimates.

"Given that spot prices have exceeded our expectations to date, and the supply hit from Vale mine closures are larger than initially expected, our forecasts for iron ore have been revised," Westpac said in a note.

Spot with 62 per cent iron content is now likely to end the June quarter at $US87 a tonne, from $US85 previously, and end 2019 at $US77 from the previous forecast of $75, it said.

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