Cash prices for iron ore delivered to China rose above USD100 a metric ton for the first time since last year because of surging demand from the world’s biggest consumer of the steelmaking material.

The spot price for ore from India rose 5.8 percent to USD100.50 a ton, the highest since Oct. 3, according to Metal Bulletin prices for the week ending July 31.

Cash prices have gained 30 percent this year as China’s 4 trillion yuan (USD585 billion) government stimulus program spurs mills to produce more steel for automobiles and buildings. BHP Billiton Ltd. and rival ore producers have been boosting spot market sales amid stalled talks for annual contract prices.

“China’s steel capacity has almost exploded,” Peter Arden, a Melbourne-based senior mining analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said today by telephone. “It’s running at an annual rate of almost 600 million tons now, which is 50 percent up on where it was late last year. Prices are reflecting that in the spot market.”

Crude steel production in China rose to a record 266.6 million tons in the first half, the National Statistics Bureau said July 17. First-half iron ore imports jumped 29 percent, fueled by a rebound in the economy. Goldman Sachs Group Inc. lifted its recommendation on China’s steel industry to “attractive,” according to a research note on July 29.

BHP, Rio Tinto Group and Vale SA control more than two- thirds of the world’s seaborne trade in iron ore.

Talks Breakdown
China is boosting purchases on the cash market because of the “breakdown” in talks for a benchmark price between steelmakers and foreign producers, Citigroup Inc. said July 17. China’s failure to agree to a 33 percent cut in annual contract prices settled with South Korean and Japanese steelmakers by Rio Tinto has exposed its mills to surging costs as cash prices rose. It is seeking a reduction of as much as 45 percent.

Suppliers have “distorted” the market and disrupted annual contract talks by “massive” selling on the cash market, the China Iron & Steel Association said today. Spot iron ore sales accounted for about 83 percent of China’s imports this year, causing large stockpiles at the nation’s ports, it said.

Still, further gains in the cash price may be curbed by the restart of iron ore mine output in China, trimming demand for imported material, Mark Pervan, senior commodity strategist Australia & New Zealand Banking Group Ltd., said today.

BHP Chief Executive Officer Marius Kloppers has been pushing for an end to the annual contract pricing system and is selling more ore on the cash market after prices soared this decade on surging Chinese demand. Rio said this month about half of its iron ore sales this year have been on the spot market.