Iron ore futures rose to three-week highs on Thursday amid hopes of recovery in Chinese demand for steel production in the fourth quarter, which has been heavily hit by steel production cuts since July.
However, the most liquid Dalian iron ore has dropped nearly 40% since reaching a record high in mid-May.
The top-traded iron ore on the China Dalian Commodity Exchange DCIOcv1 rose 10.7% to 758 yuan ($117.13) per ton in early trading, reaching its highest level since September 8.
Iron ore's most active November contract on Singapore Exchange SZZFX1 rose 11.6 percent to $127.80 per ton.
Iron ore for October delivery on CME (Chicago Mercantile Exchange), America's largest futures and options exchange, was up $5.80 to $120.05.
The gains in iron ore futures this week reflect the recovery in spot prices in China, the world's largest steelmaker, as the country's demand for restocking ahead of the Golden Week holiday on October 1 supports prices.
According to SteelHome advisory data SH-CCN-IRNOR62, 62% reference grade material traded at $118.50 per tonne on Wednesday, a two-week high.
Still, the overall situation in Chinese metals markets remained cautious amid power outages and famines that led to production cuts in the world's largest metal consumer, and the Chinese Evergrande debacle.
"The power crisis is causing many steelmakers to cut production," said Daniel Hynes, senior commodity strategist at ANZ, citing industry data showing a 7.2% month-on-month drop in output in the first two weeks of September.
He said China's steel production limits will lead to a loss of iron ore demand of about 89 million tons in the second half of the year.
Construction steel rebar on Shanghai Futures Exchange SRBcv1 fell 0.6%, while hot rolled coil SHHCcv1 was flat. Stainless steel SHSScv1 fell as much as 4.7%.
Dalian coking coal DJMcv1 rose 4.3% and coke DCJcv1 traded sideways.
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